Lifestyle Creep: What It Is and How to Manage It Effectively

With more money coming in, we’d like to think we’d pay off bills and grow our savings. Yet, the money comes and goes, and we do none of that. So, if the problem isn’t that we don’t have enough money, what is it? It’s called Lifestyle Creep or Lifestyle Inflation. This is often seen in high-income individuals, but it can happen to anyone. The most common effects are an inability to save, and a decline into debt.

Lifestyle Inflation

What Exactly Is Lifestyle Creep?

It’s a gradual spending increase that accompanies a growth in income. You notice that you have more discretionary money available. So, you buy the shoes or upgrade to an apartment in an expensive neighborhood since you think you can afford it. You may even convince yourself that you deserve nice things, and these upgrades become the norm.

There are two things about lifestyle creep that make it dangerous.

  • The first is that it occurs gradually over a long time, making it almost invisible.
  • Secondly, what happens if your disposable income decreases but your spending habits remain the same? Where does that leave you? Very likely in debt, since more money is going out than coming in.

How to Manage Lifestyle Creep

It’s hard to avoid lifestyle creep because you’ve become accustomed to a certain way of life. But the long-term benefits, including the healthier retirement account, more than make up for it.

  • Make, and stick to, a budget. This is the #1 recommended action to avoid lifestyle creep. It will keep your spending to manageable levels as income grows.
  • Create clear financial goals. Write down your goals or print pictures of them. Each time you feel your financial resolve weakening, focus on your goal. You can spend your money on the goal, or the temporary distraction: which do you really want?
  • Plan for increases in income. Make a plan, even if the money isn’t on its way. You’ll be less tempted to spend it if you’ve already mentally allocated the financial surplus. Consider moving the money into a savings account with higher interest rates, or into a retirement account for your future self.
  • Reward yourself. Being on a strict financial diet is hard. Making strategic choices instead of impulsive ones can help keep your focus. For example, if there is something you want to purchase, why not sit on it for a while (like a month). Many splurges are desires that fade with time. Use the month to research if there are coupon codes or other sales promotions which can lower the cost. If after the month has passed you still want or need the thing, then buy it.
  • Share your financial vision with friends. It’s tempting to blow your budget if you’re trying to keep up with friends and family. They may want to hit the bars weekly, take luxury vacations, or buy new cars every year or two. The social pressure can easily weaken your resolve, and your budget. Be honest with them about your financial vision. More importantly, don’t force yourself into taking on purchases you cannot afford. Real friends will accept you regardless.

Conclusion

Lifestyle creep is very good at enticing you to spend when you should save. You will probably never see it until you start wondering why you don’t have any money, even with a high income. Have a plan in place and you will be able to both reap the rewards from your income and save quicker for the retirement.