Lifestyle Creep: What is it and How Can You Avoid It?
It starts subtly. You get a raise, a bonus, or a new job with a higher salary, and suddenly, your spending increases right along with your income. You go from making your coffee at home to running through the drive-thru more often; you upgrade your phone, move to a nicer apartment, or get takeout more frequently on busy days. You start splurging on the nicer shampoo because you can. This phenomenon is called lifestyle creep, and it can quietly erode your ability to build wealth and achieve long-term financial goals.
What Is Lifestyle Creep?
Lifestyle creep happens when discretionary spending increases as your income goes up. Eventually, new expenses begin to feel necessary over time. Unlike one-time splurges, lifestyle creep results in permanent spending changes that make saving, investing, or paying off debt harder. The danger? If your expenses grow as fast (or faster) than your income, you might feel financially stuck despite earning more.
Look Out For These Signs To Spot Lifestyle Creep
• Your monthly savings rate hasn’t increased, even though your income has.
• What you once considered occasional treats now feel like necessities.
• Your credit card balance keeps growing, even though you now have a higher salary.
• You’re leasing or financing expensive items just because you can afford the payments.
• You’re no longer budgeting because you assume your income can cover everything.
How Can You Prevent Lifestyle Creep?
If you’re proactively looking to avoid lifestyle creep, here are some strategies to keep your spending in check:
1. Increase Your Savings Rate. When you get a raise or a bonus, make it a habit to increase your retirement contributions, emergency fund, or investment savings before adjusting your spending.
2. Automate Your Finances. Set up automatic transfers to savings and investment accounts so that extra income is allocated before you have a chance to spend it. Out of sight, out of mind!
3. Create a Guilt-Free Fun Fund. It’s okay to enjoy some of your extra income! Set aside a specific amount for discretionary spending so you can indulge without feeling financially irresponsible.
4. Reevaluate Your Budget. Regularly review your budget to ensure your spending aligns with your priorities. Look over your statements and highlight signs of lifestyle creep. Adjust where necessary to prevent unconscious spending from taking over.
5. Practice Gratitude. Lifestyle creep often stems from comparison and a desire for more. Focus on appreciating what you have rather than constantly upgrading. Unfollow influencers or store pages on social media that tempt you to spend recklessly.
A good rule of thumb is to split raises between savings, debt repayment, and lifestyle upgrades. For example, if you get a 10% raise, put 5% toward savings and allow yourself to enjoy the other 5%.
Next month, we’ll discuss how to spot and reverse lifestyle creep if you realize you’ve already let it impact your finances.