How to Budget With a High Income

Quick Answer

You may not feel the need to budget as your income grows, but lifestyle creep can keep you from achieving your financial goals. It's still important to set and work toward goals, track your expenses, maximize your savings and also build in flexibility to your money management.

Man seated in home office budgeting.

When you're on a low income, budgeting to make the most of every dollar you earn is a necessity. But as your income grows, you may be tempted to relax on your budgeting and spend your money more freely.

That's not necessarily a bad thing—personal finance is personal, and you can spend your hard-earned cash however you want—but if you're not careful, lifestyle creep can quickly get out of hand and start impacting your financial goals.

Whether your salary increase has been gradual or sudden, here are some steps you can take to manage your money well while also maintaining flexibility with your spending.

1. Track Your Expenses

Keeping track of your spending is a standard budgeting practice for all income earners, but it can be especially complex for those with higher incomes.

As your income grows, you may be tempted to relax on your expense tracking, as a little extra spending here and there likely won't threaten your financial security. If you become too complacent, though, it can be easy to waste more money than you realize.

And if you're spending too much money on things like eating out, entertainment or online shopping, it could be detrimental to your ability to build wealth with your higher income through investing and other major financial goals.

Again, you may not need to track your spending as strictly as you have in the past, but it's still a good idea to have a general idea of where your money is going at all times so you can evaluate your spending habits and avoid developing poor ones.

2. Set Up Spending Restraints

There may no longer be a need to budget down to the penny in every spending category, but it may still be a good idea to set some maximum spending limits to help you from going overboard in certain areas.

Even if you go over your spending limits by a bit, having that restraint in place could help you avoid spending far more.

3. Be Sure You're Saving Enough

Now that your income has grown, it'll be easier to incorporate your savings goals into your budget. Instead of saving whatever is left over at the end of every month, you have the luxury of setting up automatic transfers to your savings account.

In fact, it might be a good idea to set up multiple savings accounts for each of your savings goals, such as your emergency fund, holiday savings, down payment fund, vacation fund and more.

You'll also want to double-check your retirement savings rate and determine whether you need to increase it to match your current income. Experts recommend saving at least 15% of your pretax income every year, including your employer match (if applicable), toward retirement.

4. Build in Flexibility

While it's still a good idea to set some limits on your spending, they don't have to be the hard limits you might find with the envelope budgeting system or a zero-based budget.

Instead, you may consider creating a separate bank account with no specific purpose. Each month, you can transfer money into this account from your main checking account and use those funds however you want. And depending on the month, you may use more or less than what you've contributed for that month.

You can also set spending limits that don't add up to your total take-home pay, so if you go over in one area or even multiple areas, you'll still be living within your means.

As you consider how you want to balance your financial goals with your lifestyle, it's important to try to be as flexible as possible not only to allow you to live the life you want but also to weather potential financial challenges as they arise.

5. Watch Out for Lifestyle Creep

There's nothing wrong with improving your lifestyle as your income grows, but it's important to avoid locking yourself into higher expenses. For example, if you upsize your housing situation, you may be locking yourself into a much higher mortgage payment for years to come, limiting the cash flow you can use to fund other financial goals.

So, as your income grows, be mindful of your increasing expenses, particularly the fixed ones. Consider elevating your lifestyle slowly rather than making a lot of big changes quickly to avoid letting lifestyle creep take over.

The more effort you make to maintain focus on your financial goals along with your lifestyle, the easier it will be to make the necessary compromises to live a better life without putting your future at risk.

6. Don't Neglect Your Credit

As your income grows, you may need to rely less on credit to get by. But even high income earners may still need to turn to financing to buy a home or a car, and you can still use credit cards to make the most of your spending through rewards and benefits.

As a result, it's a good idea to monitor your credit regularly and keep track of how your actions impact your credit score. Doing this will also help you spot potential inaccuracies or even fraud on your credit report, so you can dispute them before they wreak havoc on your credit history.

And when you do need to borrow money, you'll be better prepared to secure better terms on your loans, including lower interest rates, fewer fees and more.