Lifestyle creep: what it is and how to avoid it

Have you ever received a raise or bonus and, shortly after, found that your spending habits increased along with it? This common phenomenon is known as lifestyle creep. As your income grows, so can your spending on non-essential purchases, often without you realizing it.

Recognizing and managing lifestyle creep is important if you want to improve your long-term financial health. Left unchecked, it can derail your savings and investment plans, delay your financial goals, and cause unnecessary stress. However, reining in lifestyle creep can help you make more intentional choices about how you use your money as your income grows over time.

What is lifestyle creep?

Lifestyle creep occurs when an increase in income leads to increased discretionary spending. When you start earning more money, an inflated lifestyle can easily sneak up on you; you might start spending more money without even realizing it. While it’s natural to want to enjoy the fruits of your labor, unrestrained lifestyle inflation can prevent you from saving for your future and achieving financial stability. 

Increased income doesn’t automatically lead to lifestyle creep. For instance, if you’ve been going without important things you need for day-to-day functioning, or using credit cards for essential expenses, it may make sense to use your additional income to fund necessities or get out of debt. 

What causes lifestyle creep?

Several factors can influence your personal inflation rate.

• Income increases: Raises, promotions, and bonuses can lead to lifestyle inflation. When you earn more, it’s easy to feel comfortable spending more. This psychological comfort can lead to impulse buying and less intentional money management.

• Social pressure: The pressure of keeping up with peers or conforming to societal norms may encourage you to spend more on luxuries to obtain a more lavish lifestyle. When you see others enjoying fancy vacations or dining at high-end restaurants, you may feel compelled to do the same.

• Lack of financial planning: Without a structured financial plan, it’s easier to fall into the trap of lifestyle creep. If you don’t have a budget or clear financial goals, you might find yourself spending money without thinking it through, leaving little room for savings or investments.

Common signs of lifestyle creep

How do you know if you’re falling victim to lifestyle creep? Look out for common indicators that your spending is starting to balloon.

• Increased spending on non-essentials: Are you buying more things that you don’t need? Dining out more frequently? These could be signs of lifestyle inflation.

• Upgrading lifestyle choices without necessity: If you’ve upgraded your car, home, or gadgets without really needing to, it might be a sign that your spending is creeping up.

• Reduced savings rate despite income increases: Ideally, as your income grows, your ability to save and invest can too. If this isn’t happening, lifestyle creep may be undermining your long-term financial goals.

• Accumulation of luxury Items and services: Purchasing multiple high-end items and services you didn’t previously have is a clear sign of lifestyle creep.

How to avoid lifestyle creep

The antidote to lifestyle creep is conscious planning. When your income goes up, it’s an opportunity to make proactive, mindful decisions about what you’ll do with that additional money. Instead of letting your increased income leak away without really noticing, you can decide how to use it based on your priorities.  

#1: Set financial goals

Set clear short- and long-term financial goals to help prioritize your spending and saving. Whether your savings goal is building an emergency fund, saving for a house, or planning for retirement, having defined goals will keep you motivated and focused.

#2: Stick to an accurate budget

Creating and sticking to a budget helps you avoid lifestyle creep by planning exactly what you’ll do with your increased income. Regularly review and adjust your budget to reflect changes in income and expenses to help you control your spending and put additional income toward your financial priorities.

#3: Automate your savings

Automating your savings ensures a portion of your income is saved before it can be spent. When your income rises, consider setting up automatic transfers to your savings account, investment account, and retirement account. This not only simplifies the saving process but also helps build a habit of consistent saving and investing.

#4: Monitor your spending habits

If you want to avoid lifestyle creep, you need to identify when it’s happening. Tracking your spending allows you to see where your money’s going and notice when your spending is creeping beyond your previous habits. Check your transactions regularly, and consider keeping a spending diary or using a budgeting app to monitor your expenses.

#5: Make conscious spending decisions

Understand the difference between needs and wants, and make conscious choices about how much of your increased income you want to spend on non-essentials. And if you find yourself doing more impulse buying after you get a raise, ask yourself if a purchase aligns with your financial goals before making a decision.

#6 Practice being frugal

Living below your means, regardless of income increases, can help you combat lifestyle creep and put more money toward your long-term financial goals. Find joy in simple, cost-effective activities and focus on what truly matters to you. Frugality doesn’t mean deprivation; it means prioritizing your financial well-being.

Defeat lifestyle creep and achieve your financial goals

Lifestyle creep is a common challenge, but with awareness and proactive steps, you can use increasing income to fund your longer-term goals. Getting a bigger paycheck or receiving a financial windfall is exciting in the moment, and it can be tempting to start spending that money right away. By taking a step back to think about your priorities and make a plan, you can avoid lifestyle creep and prioritize your future financial well-being. 

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