Milton Friedman said that we base our consumption on our expectations of future income, rather than what’s currently in our checking account. If work has gone well for years, we start assuming it’s the norm. Then our consumption rises to that level. Duesenberry’s ratchet effect says that consumption is easy to increase but hard to decrease. Your story kind of breaks that rule, though. You cut your consumption by 20% in only a month! So maybe discipline was never the issue, after all.
You tracked all of your spending for years. Taxis, cat food, you name it. That gives you an accurate picture of where every last cent went. But it can’t tell you which part was optional. Your average spending over the past few months is simply a record of your past habits. Those habits are tied to your income. They grow as your income grows. So any forecast made on an app that doesn’t take this into account will be off as soon as your income changes.
You should create a budget based off of your lean month. Take this new, lower spending number and treat it as your real baseline. Anything you make above it should go towards debt, savings, or another boring but important thing. Only after you’ve covered those should you put money towards frivolous purchases. This keeps you from spending all of your raise.
There are actually many apps these days (depending on where you live) where you can enter your income and outgoings in order to monitor spending, some will even plug straight into your bank account to minimize the manual element. The reality is that beyond a basic budget most people don't really want to know or trace where every cent is spent, because it can actually sap a bit of joy out of life. It's definitely worthwhile reviewing your spending every few months however, because it's so easy to go overboard or start to let wasteful habits creep in. Your first paragraph is interesting and true, a bit like gambling we can start to lie to ourselves to justify what would previously have been considered luxuries becoming regular consumption if our income rises, which can make it hard to trim them out later. Necessity will usually break all habits though and force a dire look at spending that we might not otherwise take.
When income increases, many people also increase their expenses. Things that were previously considered luxuries become part of their daily lives after their income increases. Even if their income decreases, their previous habits remain. As a result, financial stress is created. It is important to know how much income they are getting per month, how much is being spent on necessary expenses, and how much money is being spent on unnecessary things. Even if you review your expenses every few months, you can understand where unnecessary expenses are being incurred and which habits need to be changed.
There is no rule that you have to increase your living expenses just because your income increases. If you can save a part of that extra money for savings and investments when your income increases, it will be easier to create financial security in the future. If you increase your expenses every time your income increases, it can be difficult to move forward financially even if you earn more.
You should not wait for a financial crisis to control your expenses. When faced with danger, people are forced to cut back on a lot of expenses. But then there is less freedom to make decisions. If you can review your expenses and reduce unnecessary expenses under normal circumstances, you can avoid a lot of future stress.
