Beware of Lifestyle Creep

Lifestyle creep, or lifestyle inflation, happens to the best of us. As your standard of living improves, your non-essential discretionary purchases gradually increase. You might even start to think your “wants” are “needs.” Some creep is natural and to be expected, but excessive creep can derail your finances. In extreme cases, lifestyle creep forces you to live paycheck to paycheck or rely on debt when you should have a  comfortable salary.

Here’s an example of lifestyle creep in action: Imagine you’re a college student and get the occasional fancy $5 coffee as a treat, usually because you had a gift card. You graduate and get a full-time job, and now you treat yourself to that drink on paydays. As you move up in your career, you’re now getting that drink every Friday, and also on stressful days where you need a pick-me-up.

The coffee treat itself isn’t the problem, as long as it fits within your budget and doesn’t disrupt your financial goals. But the problem is that lifestyle creep happens in other areas at the same time. Grocery store impulse buys, or expensive brand name purchases add up. Maybe you dine out more freqjukiuently, and habitually order appetizers and a round of drinks. Over time, your preferred clothing brands are getting more expensive, and when it’s time for a new car or phone, you go for the latest and greatest. As a result, you aren’t able to save as much for your medium long-term goals, like a vacation or retirement.

So how can you avoid the trap of lifestyle creep? Here are some tips:

Maintain a Budget

Your budget helps you plan for income and expenses. As you set up your budget, treat your savings account like a bill — something you must pay each month. Next, include discretionary purchases as a line item in your budget. By allocating a weekly or monthly amount to spend as you see fit, you stay on budget and manage lifestyle creep.

Don’t forget to adjust your budget as your income increases. With every raise, it’s tempting to spend a little more. Soon that money has disappeared and you have little to show for it. Instead, increase your contributions to savings and retirement accounts, or increase any debt payments.

Identify Your Money Values

Imagine you have $100 earmarked for discretionary spending this month after you’ve paid all your bills, put some money in your emergency savings, and covered other essential expenses like gas and groceries. Take some time to reflect on the spending categories that are important to you (such as dining out, hobbies, social activities, new clothes, saving for big purchases, investing, etc.) and rank them in order of importance. This exercise helps you develop a budget that aligns with your values, and keeps you mindful of discretionary purchases. 

Beware of “And’s”

It’s okay (and important) to treat yourself from time to time, but remember to keep an eye on the “and”s. “And”s can rack up quickly and sink your entire discretionary budget, like getting an expensive coffee and going out for lunch and getting delivery for dinner. Instead, identify the expenses that you value the most and treat yourself wisely.

Monitor Lifestyle Changes

Be mindful as you experience lifestyle changes, like moving out on your own, launching a career, buying a house, starting a family, or retirement. Each life stage has unique financial responsibilities, as well as social pressures that can influence lifestyle creep. Retirement can be an especially shocking life change. You’re accustomed to a certain lifestyle while in the workforce; then suddenly you have more time on your hands that you’d like to fill with hobbies and traveling — but you also have less income and need to budget wisely.

The bottom line is this: Track your spending and plan your expenditures so your money doesn’t “creep” away unnoticed.

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