How to make the most of your peak earning years

When you get a pay rise, it’s tempting to let lifestyle spending creep up at the same rate. But in doing so, you may be passing up an opportunity to secure your future financial freedom. We examine how being intentional now opens doors your future-self will thank you for.

When most people earn more, they spend more. It’s such an easy trap to fall into.

Here’s why. If your income is increasing, you’re probably working hard. So you can feel entitled to the expensive holiday, bigger house or nicer car—as a well-deserved reward.

What’s more, you may be in a line of work where there’s pressure to look successful. As a result, you justify spending, even in seemingly small ways, such as on pricier grooming or an upgraded wardrobe.

Through many small purchases over time, we can slide into increased spending—without deciding or even noticing. Lifestyle creep can feel normal, particularly if our friends and colleagues are making the same choices.

Here’s the catch. The first time we enjoy something—whether it’s new clothes or a holiday—the emotional reward is strong because it’s novel. But our brains become accustomed to the stimulus, and the initial excitement fades. Economists call this diminishing marginal utility: each time we consume something, we’re less satisfied. Those luxuries that once felt exciting quickly become our new normal. To feel that same pleasure again, we spend even more.

Choices that deliver long-term satisfaction

There’s a much smarter way. You can make the most of your income by making active choices, squirrelling away surplus income and investing your savings wisely. Here’s why it’s worth the effort.

CompoundingIt’s been said that compound interest is the eighth wonder of the world, because time can grow your savings for you. For example, a one-off investment of $10,000 earning 6.8% p.a. for 20 years grows to a remarkable $37,200. That’s almost four times the original value. And $10,000 invested every year for 20 years becomes a hefty $400,084, based on the same assumptions.¹ Note that this example is illustrative only. We encourage you to seek personal advice from your Count Financial adviser before acting on the information.

FreedomIf you aren’t locked into a costly lifestyle, you’ll have the freedom to walk away from a job or situation that’s harmful or damaging your health. And if life throws something unexpected your way, you’ll be better able to adapt.

Peace of mindIf you know that your tomorrow is being taken care of, then you’ll feel more confident in the decisions you make today.

Four ways to get ahead

The key to building your savings is to be intentional. Here are four things you can do:

Set a six-month cooling-off period. When you get a raise, bonus or any other financial windfall, give yourself time to put the increase into perspective. You’ll avoid impulsive decisions and have time to weigh up how to best use the money.
Avoid locking in fixed, recurring spending commitments. Unnecessary recurring spending ties you down and can be difficult to exit if your circumstances change. In contrast, planned one-off treats can be better controlled and are more likely to bring greater pleasure.
Set a budget and stick to it, if you don’t already have one. Often the smaller things such as ordering takeaway food more often, or buying a better-quality bottle of wine, can creep up on you.
Anchor on a goal. Ask your financial adviser to help you pinpoint the retirement savings goal you should be aiming for—because keeping that goal in mind can bring purpose to your savings. What’s more, when you’re on track to reach your goal, you’ll have the freedom to make other choices, such as working less or spending more.

How your Count Financial adviser can help

Talk to your Count Financial adviser about how to make the most of your peak earning years. They’ll be able to discuss your options and recommend a savings plan and an investment approach that’s right for your situation.