Lifestyle creep: the financial trap that hurts your pockets

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Whether you realize it or not, at some point in your life you might be guilty of a concept called lifestyle creep. It’s an entirely common financial trap that can sneak up without you even noticing.

Typically this will start to happen as you grow in your professional career and start earning more money.

Now, lifestyle creep isn’t something everyone necessarily experiences, as it’s important to not overgeneralize and assume everyone has felt this trap.

But it happens often and the impact can be detrimental to your financial life, which many times you don’t notice until your finances are in shambles.

I don’t mean to scare you, but hopefully, those opening lines do grab your attention! The good news about lifestyle creep is that it can be remedied and avoided in the future.

Here’s a bit more about what is covered in this article:

What is Lifestyle Creep? (Also Known as Lifestyle Inflation)

You may have heard of this before, but lifestyle creep is something you need to know and understand.

Lifestyle creep or “Lifestyle Inflation” occurs when your standard of living improves with your income rising. And what you might have seen as luxuries in the past are now becoming necessities in your life.

So as you start to generate more income, you actually slowly start spending more without really noticing.

Since you have more income at your disposal, temptations slowly pique your interest or you tend to buy more expensive items because you can afford to.

For example, you may normally always stick to a certain grocery budget, but now you worry less and each time you shop your spending maybe $50-$100 more. Or maybe, you don’t worry about what items are on sale while shopping like you used to.

Maybe you start taking more expensive vacations, upgrading your car to something with more luxury every year or two. Now, some people might be more aggressive with spending, but for most this is a gradual process.

At this point, you become so used to having nicer things or more luxuries, that it becomes normalized in your mind. Meaning, you can’t imagine living without your current ways of spending.

All of a sudden, you are back at a paycheck to paycheck lifestyle or have little saved or invested, which leaves you wondering, “WTF!”

And it doesn’t have to be big salary jumps where this kicks in. You might go from $30,000 to $50,000 and can start experiencing lifestyle creep. Or it can happen from someone going from $100k to $200k.

Lifestyle creep has no salary boundaries!

“Nearly one in 10 workers making $100,000+ live paycheck to paycheck.” – Forbes

It’s Okay To Improve Your Living

Before you scoff at that and say, “What’s wrong with improving your standard of living if you have the means?” I say nothing, as long as it’s in moderation and if you are financially prepared.

The way you choose to spend your money is up to you and I totally think treating yourself is important to do.

I know once I switched careers and got a better paying gig, I moved into a nicer apartment. But, I already ensured I had built an emergency fund, that I was paying myself first (saving money and investing towards retirement first), and that I stuck to a simple spending budget.

The challenge is, many times we lose track of budgeting, saving, and investing for ourselves, family, and future. Instead, the material items and excitement of having money to do more is enticing.

And sure, the temporary happiness and euphoria you get with spending money on things you want is great, but in the end, it’s just “stuff.”

The happiness will fade and your finances won’t look so hot, even when you may make more income than you did before.

Next thing you know, you are working harder and longer hours to cover your new lifestyle and expenses. Then your next pay raise, you think things will be different. But alas, you’ll probably fall back in the same lifestyle creep cycle.

Some Examples of Lifestyle Creep

Although I did mention some quick lifestyle creep examples above, I wanted to provide you with some more. Many of these might resonate with you or maybe you didn’t realize you were doing either.

Again, because lifestyle creep typically sneaks up and is a gradual built up, it’s hard to catch on that you are falling victim. This is what makes it so dangerous to your finances.

Many of these examples will be relatively small, but they can start to build up to more extravagant lifestyle purchases.

This can harm your retirement plans, set you up for more debt, can cause you to not be prepared for an emergency, and much more.  Essentially, even with a bigger salary, you are now living beyond your means.

Some Potential Lifestyle Creep Examples:

  • Upgrading your flight for premium seating
  • Dining out often and at more expensive places
  • Buying new clothes frequently just because
  • Spending more at the grocery store without a budget in mind
  • Upgrading your car to something more luxurious (and more often)
  • Buying or renting a pricier home, apartment, or condo
  • Purchasing multiple cars, homes, boats, etc. just because you can
  • It’s easy to rationalize these examples and other spending habits, because of the convenience and the “why not” if you have the money.

Many times you might not have been able to experience these things growing up or even with past salary ranges. But now you can afford to do more things than ever before and it’s exciting.

This is a huge lifestyle creep stimulant and it can be difficult to control.

“More than 1 in 4 workers do not set aside any savings each month.” – Forbes

Tips to Avoid or Reverse Lifestyle Creep

While avoiding and reversing lifestyle creep is possible, it’s not going to be easy for everyone. It depends on how deep your spending habits go, but also how much work you are willing to put in to correct your financial path.

Below are a few tips to help you either avoid lifestyle creep or reverse it if you realize you may be guilty of “the creep.”

 

Make smarter financial spending choices

No duh, right?

But by this I mean you don’t have to eliminate all spending in your life and just hoard your money. It all comes down to prioritizing and placing some control of your purchasing decisions.

I think the concept is really identifying your needs vs. wants. Understanding what is important to you and realizing that you can’t always have it all, otherwise, that’s when financial trouble can sneak in.

 

Practice paying yourself first

One of my go-to processes is paying yourself first. Something that I’ve written about before and mentioned in numerous other articles. But it can help you remove lifestyle creep from your life.

This means you are putting money towards retirement or savings before touching that money for anything else. At the start, you should consider automating this process so you don’t even think about it.

Now you have money going to the right places first, then your bills, and whatever is leftover can be your “spending” money. This helps you set a limit for yourself.

However, I do realize the temptations might still be there to start using a credit card.

You’ll really have to learn self-control and understand how this can negatively impact your life. This can’t be taught, you have to develop the mindset on your own.

Create a spreadsheet of your expenses

If you are deep in lifestyle creep, it will be good to lay out your expenses in a spreadsheet. As well as all your random spending and payments.

You may think you know off the top of your head, but more than likely your numbers are way off or you are leaving items out.

Seeing this all together and the totals can be a really eye-opening experience.

It can help you catch where you overspend, what you need to cutback, and keep on a much better track with your money. This can add some extra accountability to your finances.

I like to use Personal Capital, which not only shows my spending but how my investments perform and how my net worth is growing. This helps me stay focused on my finances. Sign-up for free to start using their platform, app, and free tools.

 

Write down your financial goals

Besides making smarter choices and looking at expenses, what are your financial goals in life?

Creating and writing these down can help you establish a plan for your money and be more motivated to reach them. That way, you stay focused on the goals, instead of spending frivolously.

And your financial goals do not need to be complicated, but you can create various levels of financial goals. You can learn more about doing just that here. 

 

Keep yourself on fixed expenses

A huge reason lifestyle creep happens, is overspending from any nice salary bump you might get. Maybe you switched jobs, got a nice raise, or moved up to a new role with a better salary.

What happens with that salary bump is we quickly think of things we can afford to do and spend on.

Not always, but a lot of times that is exciting to think about! I know’ with two different wage jumps I felt that internally myself.

The key is to stay level headed and put a plan in place for the new salary. Certainly okay to add a bit more to your spending fund, but your best option is to invest the majority of that increase (or pay extra on previous debt if you have any).

Keep your expenses relatively the same, don’t jump into huge upgrades (car, apartment, home) or get new recurring monthly paid subscriptions. Staying on a relatively fixed amount of expenses, keeps your finances looking nice.

 

Remind yourself that material possessions do not define you

Too often, we get caught up in the material things and see it as defining who we are. The more things we have — the bigger our home, the more luxurious our car, etc. — the happy we’ll be and the better we appear.

But looking at social media and keeping up with friends, family, or neighbors is a good way to end up in lifestyle creep.

That’s great others are doing this or buying that, but remember the majority are upgrading just to keep up appearances.

You don’t know what goes behind the scenes financially, so why follow suit and end up in the same financial trap?

Focus on you and don’t let others worry you or define you by your lifestyle or what you have. Lifestyle creep won’t even be a concern and you’ll be much happier.

Final Thoughts

Lifestyle creep is sneaky, cunning, and entices you to spend without you noticing. Until much later, when you start realizing you have a spending issue and your pockets are empty.

The important part is to not get discouraged or embarrassed about your finances as it is completely common. Just start looking for the issues and begin to take action!

Hopefully the above helps you understand this concept more and that these tips will help you reverse any lifestyle creep you might be experiencing.

This article first appeared on Invested Wallet.