Whether you’re aware of it or not, at some point in life, you may fall victim to a phenomenon known as lifestyle creep. It’s a common financial trap that can catch you off guard without your knowledge.
Typically, this tends to occur as you progress in your professional career and your income increases. However, it’s important to note that not everyone experiences lifestyle creep, so it’s essential not to make sweeping generalizations assuming everyone has encountered this trap.
Nevertheless, lifestyle creep is a frequent occurrence, and its impact can be detrimental to your financial well-being, often unnoticed until your finances are in disarray.
Now, I don’t mean to alarm you, but I hope those opening lines have captured your attention. The good news is that lifestyle creep can be remedied and avoided in the future.
Lifestyle Creep—also known as Lifestyle Inflation.
You may have come across this concept before, but it’s crucial to understand what lifestyle creep entails.
Lifestyle creep, or “Lifestyle Inflation,” happens when your standard of living improves alongside an increase in income. What was once considered a luxury in the past now becomes a necessity in your life.
As your income grows, you slowly start spending more without fully realizing it. With more disposable income at your disposal, you might be tempted by various luxuries or choose to buy more expensive items simply because you can afford them.
For instance, you may have stuck to a specific grocery budget in the past, but now you find yourself spending $50-$100 more each time you shop. Or perhaps, you no longer pay attention to sales while shopping as you once did.
You might start taking pricier vacations or upgrading your car to a more luxurious model every couple of years. While some people may be more aggressive with their spending, for most, this process is gradual.
Over time, you become so accustomed to having nicer things and more luxuries that it becomes normalized in your mind. You can’t imagine living without your current spending habits.
Suddenly, you find yourself living paycheck to paycheck or having minimal savings and investments, leaving you bewildered and wondering what went wrong.
Lifestyle creep can occur not only with significant salary jumps but also with more moderate increases. Going from $30,000 to $50,000 or from $100,000 to $200,000 can trigger lifestyle creep. It knows no salary boundaries.
“Nearly one in 10 workers making $100,000+ live paycheck to paycheck.” – Forbes
Improving Your Quality of Life is Fine
Before dismissing the idea and saying, “What’s wrong with improving your standard of living if you have the means?” I want to clarify that there’s nothing inherently wrong with it, as long as it’s done in moderation and with financial preparedness.
How you choose to spend your money is ultimately up to you, and I believe it’s important to treat yourself.
When I switched careers and secured a higher-paying job, I moved into a nicer apartment. However, I made sure to establish an emergency fund, prioritize saving money and investing for retirement, and stick to a simple spending budget.
The challenge lies in losing sight of budgeting, saving, and investing for ourselves, our families, and our future. Instead, we become enticed by material possessions and the excitement of having more money to spend.
While the temporary happiness and euphoria from spending money on desired items may be enjoyable, in the end, they’re just “stuff.”
The initial joy fades, and your finances no longer appear as promising, despite your increased income.
Next thing you know, you’re working harder and longer hours to sustain your new lifestyle and cover the associated expenses. When you receive your next pay raise, you may believe things will be different, only to find yourself falling back into the same cycle of lifestyle creep.
Examples of Lifestyle Creep
Although I mentioned a few lifestyle creep examples earlier, let’s delve into some more. Many of these might resonate with you, or perhaps you were unaware that you were succumbing to lifestyle creep.
Since lifestyle creep usually sneaks up on you gradually, it’s challenging to realize that you’ve fallen into its trap. This is what makes it so hazardous to your financial well-being.
While these examples may seem relatively insignificant individually, they can accumulate and lead to more extravagant purchases, jeopardizing your retirement plans, increasing your debt burden, leaving you unprepared for emergencies, and more. In essence, even with a higher salary, you’re living beyond your means.
Here are some potential lifestyle creep examples:
- Upgrading to premium seating on flights
- Frequenting more expensive restaurants for dining out
- Buying new clothes frequently without a specific need
- Spending more at the grocery store without adhering to a budget
- Upgrading your car to a more luxurious model more frequently
- Purchasing or renting a pricier home, apartment, or condo
- Buying multiple cars, homes, boats, etc., simply because you can
- It’s easy to rationalize these examples and other spending habits due to convenience and the “why not” mentality when you have the financial means.
Often, you may not have had the opportunity to experience these things in the past, even with your previous salary range. However, now that you can afford them, the excitement can be overwhelming.
This enthusiasm fuels lifestyle creep and can be challenging to control.
“More than 1 in 4 workers do not set aside any savings each month.” – Forbes
Tips to Avoid or Reverse Lifestyle Creep
Although avoiding and reversing lifestyle creep is possible, it won’t be easy for everyone. It depends on the depth of your spending habits and the level of commitment you’re willing to invest in correcting your financial trajectory.
Here are a few tips to help you either avoid lifestyle creep or reverse its effects if you suspect you’ve fallen prey to “the creep.”
Make wiser financial spending choices
This may sound obvious, but it involves prioritizing and exerting control over your purchasing decisions. It’s about distinguishing between your needs and wants, understanding what truly matters to you, and acknowledging that you can’t have it all without risking financial trouble.
Practice paying yourself first
One effective approach is to pay yourself first. I’ve written about this in the past, and it has been mentioned in numerous other articles. By prioritizing retirement savings or setting aside money for savings before allocating funds for anything else, you can remove lifestyle creep from your life. Consider automating this process initially to eliminate the temptation to divert funds elsewhere.
However, I understand that the allure of using a credit card may still be present. You must develop self-control and comprehend how excessive credit card usage can harm your financial well-being. This mindset cannot be taught; it must be cultivated on an individual level.
Create a spreadsheet to track your expenses
If lifestyle creep has taken hold of your finances, it’s beneficial to organize your expenses in a spreadsheet, including all miscellaneous spending and payments. Although you may think you have a good grasp of your expenses, chances are your estimates are inaccurate or omit certain items.
By compiling all your expenses and calculating totals, you’ll gain valuable insights. This exercise can help you identify areas of overspending, determine necessary cutbacks, and maintain better control over your money. Additionally, using financial management tools like Personal Capital, which provides spending insights, investment performance analysis, and net worth tracking, can enhance your financial discipline. You can sign up for free and access their platform, app, and tools.
Write down your financial goals
Aside from making smarter choices and assessing expenses, it’s essential to establish your financial goals. By creating and documenting your goals, you can develop a plan for your money and stay motivated to achieve them. This way, you’ll remain focused on your goals instead of succumbing to frivolous spending. Your financial goals don’t need to be complex, but you can set different levels of goals to strive for. You can learn more about this approach here.
Stick to fixed expenses
A major reason why lifestyle creep occurs is due to overspending when you experience a significant salary increase. Whether you changed jobs, received a raise, or advanced to a higher-paying position, the temptation to spend more tends to follow.
While it’s reasonable to allocate some additional funds for discretionary spending, it’s advisable to invest the majority of that increase or use it to pay off existing debts. Keeping your expenses relatively stable prevents your financial situation from deteriorating.
Remind yourself that material possessions don’t define you
We often get caught up in material possessions and perceive them as a reflection of our identity. The more we acquire—whether it’s a larger home, a more luxurious car, etc.—the happier we believe we’ll be, and the more impressive we’ll appear to others.
However, comparing ourselves to others through social media or attempting to keep up with friends, family, or neighbors can lead to lifestyle creep. While it’s great that others are pursuing certain things or making specific purchases, it’s important to recognize that many individuals are simply upgrading their lives to maintain appearances.
You don’t know the financial situation behind the scenes, so why should you follow suit and fall into the same financial trap?
Focus on yourself and don’t allow others to define you based on your lifestyle or possessions. By doing so, lifestyle creep won’t be a concern, and you’ll find greater happiness.
Lifestyle creep is a sneaky and alluring trap that encourages spending without your awareness. It’s only when you realize you have a spending problem and your finances are in turmoil that you understand its impact.
The crucial aspect is not to become discouraged or embarrassed about your financial situation, as it’s a common occurrence. Start by identifying the issues and taking action.
Hopefully, the information provided above has helped you gain a better understanding of lifestyle creep and equipped you with tips to reverse its effects if you find yourself experiencing it.