Remember back in college how you could live off of your tiny paycheck from working retail on the weekends? After all, you only needed money for ramen noodles and a case of beer. As you get older, you get better paying jobs and also more responsibilities, leading to larger costs of living. Lifestyle creep, also known as lifestyle inflation, is normal as you age and move up the corporate ladder. Over time our expenses can rise to meet our income, which can be bad and can overtake your paycheck quickly. There is nothing wrong with taking on more financial responsibilities when you can afford them, but the key is to effectively manage lifestyle creep so you can live comfortably but not get carried away.
How lifestyle creep happens
It is all too easy to watch your expenses rise to meet your salary. A better car here, a bigger house there, and it all adds up. Despite how much money you make, if you spend it all you are still going to be broke. It’s all too easy to reward yourself for your hard work with loans now that you can afford a new item. Then add in expenses that happen due to phases of life: daycare, travel and commute costs, vacations, visits to sick family members, weddings to attend, etc. Lifestyle creep can happen due to upgrades and luxuries or from necessities due to changing life phases.
Don’t count your chickens before they hatch
Of course, you don’t need to drive the same car you did in the 1990s but be careful not to upgrade to soon or too fast. Getting a new job with a new, higher salary might give you the ego boost that tells you it’s time for a new car and leave you shopping for a car and a loan before you have even clocked in for your first day. As can running up credit card bills on congratulatory dinners or new furniture before your first pl paycheck. Jumping the gun can lead to debt and buyer’s remorse. Your new check might now be as much as you had thought it would be, especially if you are in a new tax bracket or have a more expensive health insurance plan. Another poor alternative is you may find that you are not a good fit at the new job but cannot leave because otherwise you cannot afford your new mortgage or car note.
A better bet is to slowly navigate your new financial waters. Wait several weeks or even months till you have been working at the new job and are used to the job and the new paycheck. Know whether you will want to stay at the job and if it is the right fit for you. Slowly shop around for your new house or car to find the right purchase and loan terms for you.
Keep expenses low when paying off debt
While you are in debt, it is best to keep lifestyle creep to a minimum. Ideally, keep your expenses as low as possible even as your income rises. That way you can throw more and more money at your debt each month to pay it off sooner. Any free space in your budget should be spent to pay down the debt. Keeping around high-interest debt and spending your disposable income on frivolities only costs you money in the long run. Once your debt is cleared you can increase your lifestyle without guilt and added interest payments.
Know what costs should reasonably rise with your life stage
Each life stage has costs. When parenting small children, you will have added costs for daycare, diapers, and clothing. As your family grows you may need a larger home with more bedrooms to accommodate the children, or elderly family members that move in with you. When single and frequently traveling, you will spend more money on eating out, Uber, hotels, and airfare. When starting a new career you will have new costs to update your wardrobe and perhaps increased commuting costs if you need to drive further or purchase a newer or more reliable car. Some costs cannot be avoided based on your life situation, but the key is to know which are mandatory costs and which are discretionary. Needing to purchase a new wardrobe for a new corporate job when you are coming right out of college is a reasonable cost, but purchasing a $30,000 brand new car that no clients will see and your salary can barely afford is not. Just because you have a baby on the way does not mean you must automatically purchase a new car. Car seats fit in almost any make and model car and the baby won’t care what the car looks like, but it will care if its parents are stressed out and cash strapped.
Plan for the long term, not just the short term
When making large purchases and upgrading your lifestyle, think of your long term needs, not just what you need right now. When you graduate college, it may be tempting to buy a slick two door sports car, but if you are planning to get married and have children in the next five years perhaps a four door car is a better choice. When upgrading your furniture, think of quality over trends and look for well-made, sturdy furniture that will last for decades over trendy, particleboard pieces you will have to replace in two years. Remodeling and making updates to your home usually will provide a return on your investment, as long as it is done well and will last through to the next owner. When purchasing property, look at the long term trends in the neighborhood, check out the schools and property values, and see how long people tend to stay in their homes. Even if you have no children and are planning to move in a few years, you still want to buy a good long-term investment property that will appreciate while you own it rather than purchasing a trendy loft apartment in an area of town that is on the decline.
Seek contentment
The best way to tame lifestyle creep is to seek contentment. Looking to be happy with things as they are and the things you have is truly the key to long term happiness, and combats the otherwise constant demand to upgrade and get the hot new item on the market. Instead of constantly looking to keep up with trends or frequently shopping for a mood lift, look around your home and think of the joy the things you have already bring you. Think of the happy memories of game nights and family dinners around your dining table, even if it isn’t farmhouse chic. Think of all the miles driven on road trips and amazing dates your car has taken you to, despite the high mileage and wonky tire. Focusing on joy and gratitude can lead to contentment and halt the drumbeat for more, allowing you some peace and the opportunity to live in today and enjoy more of your life and money.
Spend on enriching experiences, not stuff
Another way to seek contentment and avoid the materialism that often goes hand in hand with lifestyle creep is to spend your money on experiences rather than items. You can easily upgrade your lifestyle by taking classes to learn a new skill, like skiing or cooking, or traveling to exotic locales. These experiences will bring you more long term joy and happiness than purchasing more dinners out at restaurants or buying a newer car. Adding value to your life by spending more time with the people you love, whether friends or family, leads to a happier and more fulfilled life. We bond with people through shared experiences and those happy memories of traveling together or learning a new skill together can last a lifetime.
Invest in your future lifestyle
Lifestyle creep at its worst can end up allocating your entire paycheck to accommodate your day to day life, leaving you without money leftover to plan for your retirement and future lifestyle needs and wants. Instead of spending all you make now, siphon off a section of your income for long term retirement planning and investing. Thinking of the future and planning to meet your long term financial goals is paramount if you plan to have any kind of comfortable lifestyle when you retire. The worst case scenario is to spend all you make now and live comfortably for a few years and then spend your waning years uncomfortable and broke. Don’t be shortsighted and work with a financial advisor to craft an investment strategy that allows you to plan for a comfortable lifestyle both today and in the future.
Lifestyle creep often gets a bad rap and there are dozens of personal finance articles out there that will tell you to avoid it at all costs. That approach can be pretty drastic and doesn’t often take into account of your life changes that come with a price tag that cannot be avoided. There’s also no reason you have to continue to subsist on ramen noodles every night. There’s no shame in reasonable enjoying your hard earned money and upgrading to a more comfortable lifestyle that is affordable and reasonable for you. Learning how to effectively manage lifestyle creep gives you the best of both worlds, allowing you to live more comfortably in the present and in the future by focusing on contentment now and meeting long term financial goals in the future.
