Lifestyle creep or “Lifestyle Inflation” occurs when your standard of living improves with your income rising. And what you might have seen as luxuries in the past are now becoming necessities in your life.
So as you start to generate more income, you actually slowly start spending more without really noticing.
Since you have more income at your disposal, temptations slowly pique your interest or you tend to buy more expensive items because you can afford to.
For example, you may normally always stick to a certain grocery budget, but now you worry less and each time you shop your spending maybe $50-$100 more. Or maybe, you don’t worry about what items are on sale while shopping like you used to.
Maybe you start taking more expensive vacations, upgrading your car to something with more luxury every year or two. Now, some people might be more aggressive with spending, but for most this is a gradual process.
At this point, you become so used to having nicer things or more luxuries, that it becomes normalized in your mind. Meaning, you can’t imagine living without your current ways of spending.
All of a sudden, you are back at a paycheck to paycheck lifestyle or have little saved or invested, which leaves you wondering, “WTF!”
And it doesn’t have to be big salary jumps where this kicks in. You might go from $30,000 to $50,000 and can start experiencing lifestyle creep. Or it can happen from someone going from $100k to $200k.
Lifestyle creep has no salary boundaries!
Before you scoff at that and say, “What’s wrong with improving your standard of living if you have the means?” I say nothing, as long as it’s in moderation and if you are financially prepared.
The way you choose to spend your money is up to you and I totally think treating yourself is important to do.
I know once I switched careers and got a better paying gig, I moved into a nicer apartment. But, I already ensured I had built an emergency fund, that I was paying myself first (saving money and investing towards retirement first), and that I stuck to a simple spending budget.
The challenge is, many times we lose track of budgeting, saving, and investing for ourselves, family, and future. Instead, the material items and excitement of having money to do more is enticing.
And sure, the temporary happiness and euphoria you get with spending money on things you want is great, but in the end, it’s just “stuff.”
The happiness will fade and your finances won’t look so hot, even when you may make more income than you did before.
Next thing you know, you are working harder and longer hours to cover your new lifestyle and expenses. Then your next pay raise, you think things will be different. But alas, you’ll probably fall back in the same lifestyle creep cycle.
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