Lifestyle creep

“Lifestyle creep,” also known as “lifestyle inflation,” is a phenomenon where your standard of living improves as your discretionary income increases. This could be due to receiving a raise, getting a higher paying job, or any other positive changes to your income.

Essentially, as you earn more, you start spending more – sometimes almost imperceptibly – and get used to a more expensive lifestyle. For example, you might move into a nicer apartment or house, start dining at more expensive restaurants, or upgrade your car. These costs can slowly creep up until you find yourself living paycheck to paycheck again, even though you’re earning more than you were before.

While it’s perfectly fine to enjoy the fruits of your labor and enhance your quality of life, lifestyle creep can become a problem if your spending increases faster than your income, leading to little or no savings. It can prevent you from meeting long-term financial goals, such as saving for retirement, and can make you more vulnerable to financial hardship if your income drops.

Avoiding lifestyle creep requires discipline, planning, and conscious decision-making. Here are a few strategies to keep lifestyle inflation in check:

1. Stick to a Budget: No matter how much your income increases, always maintain a budget that tracks your income and expenses. This will help you understand where your money is going and will keep you aware of unnecessary increases in spending.

2. Set Financial Goals: Having clear short-term and long-term financial goals can help keep lifestyle creep at bay. Whether it’s saving for retirement, buying a home, or building an emergency fund, having these goals will motivate you to save and invest more of your income rather than spending it.

3. Automate Savings and Investments: Make saving and investing a priority. Automate transfers to your savings or investment accounts whenever you receive your paycheck. This way, you’re setting aside money for the future before you have a chance to spend it.

4. Live Below Your Means: Even as your income increases, try to maintain your current standard of living and resist the urge to upgrade. This doesn’t mean you can’t treat yourself or improve your lifestyle at all, but major changes — such as a bigger house or a luxury car — should be considered carefully.

5. Avoid Unnecessary Debt: Just because you qualify for a larger mortgage or a new credit card doesn’t mean you should take it. Increased debt payments can quickly eat into any increases in income.

6. Plan for Lifestyle Upgrades: If you do decide to upgrade your lifestyle, do so intentionally and in a way that is sustainable over the long term. Plan for any increases in ongoing expenses, such as higher rent or mortgage payments, increased utility costs, or maintenance costs associated with a bigger home or more expensive car.

7. Keep an Eye on Small, Recurring Expenses: Lifestyle creep often comes in the form of small, frequent purchases that add up over time. A more expensive coffee, eating out more often, or subscribing to more streaming services can significantly increase your monthly expenses.

Remember, it’s essential to balance enjoying the present and preparing for the future. It’s perfectly fine to use some of your increased income to enhance your quality of life, but it’s also crucial to use a portion of it to further your financial goals.