Lifestyle Creep — not a popular concept, but if you’ve been working for a couple of years, you’ve likely experienced it.
The typical manifestation of lifestyle creep is the same in every situation. It always begins with an increase in income. You’re ecstatic that you can now afford more of the things you need — and some extra. So you go for them.
Let’s take a delve into what exactly lifestyle creep is and how you can avoid falling into it.
What is Lifestyle Creep?
Also known as lifestyle inflation, lifestyle creep happens when an increase in income leads to a rise in your discretionary spending. It occurs when you get a raise or a sizable bonus at work.
Many times, lifestyle creep happens subtly. You didn’t plan to become extravagant. But it happened anyway, and somehow you found yourself increasing your spending while saving and investing little or the same as when you were earning less.
This doesn’t mean it’s bad to earn more money — it’s not. It’s the reason we all work hard; to have more money. But it’s hazardous to increase your spending while saving or investing less.
Lifestyle creep can happen when you try to keep up with your neighbors and friends. This cultural acceptance situation makes you feel that your spending should increase because your income has risen, just like the people you know.
Unfortunately, if you give in to this feeling, you will end up spending in an unhealthy way. There will be no proper financial plan because you will be unable to save or invest adequately.
So what’s the solution to lifestyle creep?
Solutions to Lifestyle Creep
It seems like the solution to this circumstance is simple and clear: make more money. If you’re not saving or investing adequately, it must be because you don’t have enough money to do so.
However, the cure for lifestyle creep isn’t simply just making more money. That is good. But if you only make more money and don’t cultivate healthy financial habits, you will find yourself still struggling with lifestyle creep at a higher level. You’ll end up spending more and still find it harder to save.
Here are some tips to help you overcome lifestyle creep:
1. Create a bigger buffer between your income and expenses: So you now have some extra cash, who says you have to spend it all? You can decide to save extra instead. Or invest more.
You certainly can set aside more money for the future. So do so.
Increased income doesn’t need to mean high spending. It can mean that you can now have bigger financial goals and take control of your financial future with confidence.
2. Always increase your savings first, then improve your lifestyle: This is something that you should resolve to do. Once you get that extra income, take out the part of the income that you intend to save, and put it in your savings account. If you have an investment plan, do the same. Whatever is left can then be spent.
Never spend first and then plan to save later. If you do so, you will find out that you have nothing to save at the end of the day.
3. Find balance: Increasing your standard of living doesn’t mean that you can’t give yourself a treat. You can get yourself an expensive gift or take yourself and your family out on a fun holiday.
But isn’t this what we’re trying to avoid? You may ask.
Not really. We want to avoid leading a lifestyle where you make steady and impulsive spending that you don’t need. Or can’t afford it.
Be responsible. Get a treat, but don’t make a habit of it.
4. Review your budget at the end of the month: Look at the lifestyle changes that have taken place since you got that raise or extra cash.
Did you order takeouts or go out to eat at restaurants more? Did you buy certain items that you didn’t need? These are the things to look out for, and having a budget will help you find out those new habits that are likely to ruin your finances.
5. Stop trying to ‘keep up with the Joneses’: Stop buying the bigger house, nicer car, etc., especially if you don’t need it.
Don’t let social media put pressure on you. Check your reason for making a hefty expenditure. Is it because of what you saw someone else acquire on social media?
Be honest and clear about this. Know your budget limits and only spend on what you can afford. You may need to change your circle of friends if they look down on you because you don’t lead an extravagant lifestyle.
Get Help on Your Way to Financial Freedom
Lifestyle Creep is a silent killer of your financial future. It will stop you from becoming financially independent in the long term.
If you want to know more about how to achieve financial independence or improve your financial well-being, we’re here for you.
At The Art of Financial Planning, we will help you with an annual financial plan and teach you how to meet those financial goals.
We’ll also share insights to help you recognize and manage lifestyle creep so that you (and your family) don’t go off the track. And along the way, we’ll see that you have some nice treats too.
Want to get started? Join us now.
