Disclosure: This post may include affiliate links. If you click on the link and make a purchase, I may earn an affiliate commission at no additional cost to you. Learn more.
What is lifestyle creep?
Lifestyle creep, or lifestyle inflation, is when your discretionary spending increases along with your income.
Did you notice?
When you received a substantial raise or landed a new high-paying job, did you find yourself spending at higher-end dining places? Or buying a new luxury car? Or perhaps replacing and filling your wardrobe with branded clothes?
“Well, I’ve earned the right to splurge a bit. Why not upgrade my car or revamp my wardrobe? I work hard, after all!”
And you’re not wrong for having such thoughts.
You’ve put in the effort and shouldered the stress, and yes, you absolutely deserve to bask in life’s little luxuries.
But what once seemed like an occasional gift gradually becomes the norm. Your lifestyle starts to inflate, turning previous luxuries into present-day necessities and escalating your living costs. This significant shift can endanger your financial stability and future.
So, where do we draw the line between celebrating your success and extravagance?
Recognizing the Signs of Lifestyle Creep
- Stagnant or Shrinking Savings: Ideally, as your income grows, so should your savings. If this isn’t happening, it’s a red flag.
- Constant Upgrades: Regularly upgrading your wardrobe, house, or car is a definite sign of lifestyle creep.
- Justifying Lavish Spending: Frequent buying of luxury products accompanied by justifications like “I deserve this” indicates an upward shift in your spending habits and a clear sign of lifestyle creep.
- Living Paycheck to Paycheck: Despite a higher income, you still struggle to make ends meet, which is a clear sign of lifestyle inflation.
“Studies have shown time after time that living paycheck to paycheck has very little to do with income levels but rather with spending levels. Anyone who spends everything they earn will find themselves in this position,” says Bobbi Rebell, founder of Financial Wellness Strategies and author of Launching Financial Grownups.
MarketWatch – ‘$100K doesn’t go as far as it used to.’ Almost half of Americans earning $100K or more now say they live paycheck to paycheck. Written by Alisa Wolfson on 31st May 2023.
Awareness is the first step toward change.
If all these sound familiar, it’s time to reassess your financial habits.
The Negative Consequences of Lifestyle Creep
On top of diminished bank balances, unchecked lifestyle inflation has profound long-term effects on your finances and quality of life.
- Eroded Savings and Financial Stability: Emotional spending, impulsive purchases, and luxury indulgences can undermine your finances, creating instability.
- Compromised Quality of Life: True contentment comes from aligning your life with your values, not fleeting desires. Constantly chasing the next big thing can rob you of present joy.
- Jeopardized Future Plans: Lifestyle creep can divert funds from long-term goals, impeding your future financial freedom.
Recognizing and addressing lifestyle creep is crucial for a balanced life. It ensures that you enjoy the fruits of your labor and secure your future. And the best way to secure your future is to take steps to protect your financial well-being proactively.
Now, let’s find out how to keep lifestyle inflation at bay.
4 Steps to Combat Lifestyle Creep
So, how do you avoid lifestyle creep?
Here’s how:
1. Craft a Budget & Set Clear Financial Goals
First, list all your income sources and list every expense.
Break down your spending into categories—it’ll be much easier to see where you can start saving. Be honest about your income and spending. A budget based on accurate information is much more effective.
Next, set short to long-term financial goals.
Think about the immediate future and further down the road, like saving for a down payment, retirement, a child’s education, or creating an emergency fund for unexpected emergencies.
Why:
Creating a detailed budget helps keep you on the right path, ensuring every dollar works towards your goals. Setting specific financial goals helps guide your financial choices and keeps your spending in check with your plans.
How:
There are many different types of personal budgets.
Pick one that you like and give it a go. Personally, I’m a fan of the 50 30 20 Rule—it sets clear boundaries, allows for a bit of luxury as your income grows, ensures you continue to save and invest, and keeps things from getting out of hand.
Alternatively, you can use a budgeting app to help you track every dollar and ensure you stick to your plan.
Also, regularly review and tweak your budget and financial goals, if needed, especially when your income, expenses, or priorities shift over the years.
2. Prioritize Saving and Investing
Just like paying your bills, saving and investing are essential if you want to get ahead in life.
Why:
No matter how big or small, putting aside a portion of your income consistently will get you closer to your goals. It adds up over time, even if it’s just a little bit each month. Moreover, investing is how you can keep up with inflation.
How:
Set up automatic transfers to your other accounts.
Automatic transfers help build your savings without you thinking about it or having the chance to use it for something else.
Investing is a different ball game, and unless you’re willing to spend hours studying and keeping up with the latest developments daily, a financial advisor can be beneficial.
When you’re ready to invest, find a trustworthy financial advisor who can teach and guide you through the complexities of investing in ways that align with your goals and risk tolerance.
3. Adopt an Intentional Approach to Spending
An intentional approach to spending means questioning each purchase you’re going to make.
Is it something you genuinely need or just a want?
Are you buying this item because it aligns with what’s important to you or what you think you should have? Try to discern whether the item adds real value to your life, rather than just being something to keep up your appearances.
Why:
An intentional approach to spending can significantly reduce regrets and financial stress down the road.
It helps ensure that the choices you make with your money genuinely contribute to your well-being and happiness. It also acts as a defense against impulsive spending and lifestyle creep, both of which are key to maintaining a stable and fulfilling financial life.
How:
Start by taking a good look at your current belongings and how you typically spend your money.
Ask yourself: “Are these spending habits or reactions to those around me?”
Strive to keep only what truly adds value to your life and be ready to part with the rest. A quick way to get you started is by adopting frugal and thrifty habits. These can be excellent stepping stones towards a more intentional lifestyle.
Lastly, always be grateful for the things you already have and let your bigger life goals steer your financial decisions, ensuring they align with your values and help you keep the lifestyle creep in check.
4. Resist the Urge to Compare
It’s easy to see others and assume they have everything sorted out.
But it’s vital to remember that we all walk different paths. They might be earning more than they let on or be deep in debt just to keep up their appearances.
Why:
Measuring your financial success against others can lead you to try to keep up with your peers.
This not only strains your finances but also impacts your peace of mind. What matters is focusing on your own financial journey and well-being.
How:
Take pride in your own progress and celebrate your successes, no matter how small.
Your goals and values should always be the ones guiding your financial choices, not someone else’s lifestyle.
Tame the Creep, Cherish the Leap
We all face the temptation to live more luxuriously as our incomes increase.
But with what you’ve learned today, you can easily prevent lifestyle creep from messing up your finances.
So, start making thoughtful, intentional choices today. Start crafting your money story, one intentional decision at a time, and pave the way to a richer, more meaningful life.
Let’s get going!
