Lifestyle Creep & How to Avoid It

Lifestyle creep happens to the best of us. We work hard, but no matter how much we watch our spending, it never quite feels like we have enough to truly have some fun.

Then, maybe you get a raise. And raises tend to be on the smaller side, maybe 2-4% or even 5%, if you’re lucky. That isn’t enough to make your paychecks feel very different, but perhaps they feel just different enough.

So, you spend a little more. You allow yourself an extra luxury here, a small treat there.

Or maybe you get a bigger raise, a new job, or a bonus. Now you really have some cash to play with! Of course, you could put that money towards paying down your debt, but then it never feels like you’re getting ahead.

So, you spend it, but not on big things. Instead, you start buying the smaller things. Maybe instead of preparing every meal from scratch, you enjoy the convenience of a weekly meal subscription service. It costs a little more than buying the groceries yourself, but doesn’t the time it gives back in your life count for something?

Perhaps you indulge in some clothes you want but don’t need. Maybe you give in to impulse purchases a bit more because you can.

These are not bad things to do. In fact, this is perfectly normal. You may even have started spending a bit more than your means without even realizing it.

The practice of gradually increasing your standard of living in proportion to or in excess of your increase in income is known as lifestyle creep.

Personal inflation

Another way to think about lifestyle creep is that it’s your own personal rate of inflation.

The good news is that, unlike the inflation that affects the overall economy, lifestyle creep is a form of inflation that you can control, and even reduce.

Lifestyle creep can happen before you know it. Little by little, it’s easy to lose sight of your long-term goals. It’s easy, too, to not realize the great impact you can have when you make some slight shifts in how you spend your money.

An extra pair of expensive shoes here, a few dinners out there, and the next thing you know, you’re trading in your perfectly good used car for a newer model just because you can.

What used to be a luxury now feels like a necessity.

More than anything else, lifestyle creep is the result of a change in thinking. Moving away from a money mindset toward a spending mindset is the simple shift it takes to derail your saving and spending habits and create your own form of personal inflation.

Is lifestyle creep good or bad?

Lifestyle creep is not so much good or bad as it is a simple fact of human nature. Your mindset is the key factor that will determine whether or not lifestyle creep is a situation you wish to maintain or not.

Lifestyle creep can be good because:

  • You’re making more money. Lifestyle creep means you are also experiencing salary creep. This is a good thing! Who doesn’t want more money? Isn’t that what we all want to do as we work: earn more so we can improve our personal situation? Your lifestyle can’t creep if you don’t have the income to make it happen.
  • You’re able to have more things. Everyone’s threshold for importance of having things is different. You’d be hard-pressed, though, to find someone who doesn’t agree that life is more fun when you can spend what you want on the things that make you happy.
  • You have more of a life. Or, at least you feel like you do. With a bit more disposable income comes the opportunity to eat out a bit more, to go on vacations you might not plan otherwise, and to even socialize more.
  • You’re no longer broke. Or at least you don’t feel that way. With every bit of lifestyle creep you experience, you might feel more and more comfortable in the ways that matter to you. Who doesn’t want that?

Lifestyle creep can be bad because:

  • You can never really get ahead. It sure might feel like you’re getting ahead, though, because that’s the lure of the creep. But every bit of discretionary spending you don’t keep in check is a tiny step further away from meeting your bigger picture financial goals.
  • You’re not able to save for the bigger picture. If your income increases, say, 3% each year, which is a fairly standard cost of living increase for those lucky enough to get them, then the little bit of extra money in your paycheck will be spent very quickly.
  • You struggle to pay down loans. Loans, even very large loans, don’t go away without a lot of work. It’s rare that anyone has a huge windfall and is able to eliminate loans quickly. Instead, success at reducing loan amounts is achieved from steady repayment over a set period of time. That’s hard to do when every time you get a bit more money, you spend it on something else.
  • You won’t have an emergency fund. When any increase in your paycheck goes toward something fleeting like a higher car note or new clothes, those are dollars that could have otherwise built up your emergency fund.

Is lifestyle creep a millennial problem?

“Millennial” is not a bad word, even if there are some people who like to give people born after 1980 a bad rap.

People mock things like avocado toast and there is a stereotype that millennials have no work ethic, but avocados are good for you, and millennials work incredibly hard.

The millennial generation tends to be strong with using technology. They are, as a group, focused on growing personal relationships and finding ways to make meaningful impact in the world. Social justice tends to be a big focus, with many people from the millennial generation taking stands in politics, conservation, and other forms of community service. So it’s no surprise that millennial, like everyone else, want to make the most of their income so they can focus on the things that really matter to them in life.

Lifestyle creep, or personal inflation, can affect anyone, not just millennial. Taking on more debt than you can afford is a problem going back as long as there have been paychecks. Personal finance education is also not something taught in schools, so every generation has entered the workforce at a disadvantage in terms of what they need to know to save, invest, and build personal wealth.

How to avoid lifestyle creep

Adjust your mindset

The easiest way to avoid lifestyle creep is also the most important: remember that it’s a mindset, and you are in control of your decisions. Your approach to your lifestyle is yours to change, at any time.

By all means, reward yourself when you know there is something you’d like to buy. Indulging a bit is not a bad thing, and retail therapy can even be good for your headspace sometimes. That will also help you curb the desire to keep up the creep.

But, big picture, even though it may feel at times like you never have true control over your finances given how many expenses come your way at any given time, it can certainly feel as though you don’t have control. But you do.

Have a fun fund

An emergency fund is a must for everyone, regardless of budget. Having even a thousand dollars or two set aside in case of a car repair or hospital bill you didn’t anticipate can offer peace of mind, and keep your budget from getting derailed.

It’s also important to have a fun fund. This is another savings account where you might keep a little less money than in your emergency fund but you’ll have a bit set aside to spend at will and without guilt on the fun things you might otherwise spend on the creep. Want a month where you order in twice a week so you don’t have to cook? Use your fun fund. Have the opportunity to score tickets to a hot show? Use your fun fund. This way, your money is set aside with intention and deliberation and spending it won’t eat in to the money you spend on other things, like funding that emergency fund and paying down debt.

List your goals

It’s hard to accomplish goals that you have not defined. Don’t let your goals be vague ideas bouncing around in your head. Write them down.

Include both short (monthly, annually) and long (five years, ten years, and beyond) term goals. Anything that costs money that you would like to be able to do or buy goes on the list. Once you have that information in front of you, you can plan for how to accomplish these goals.

Conduct a lifestyle inventory

Once a year, do a lifestyle inventory of how you spend your money. Here are some of the items you might consider:

  • Does your employer typically award an annual cost of living raise or performance bonus?
  • Calculate what it would cost to increase your retirement fund by 1 percent.
  • List those short and long-term goals that you have already identified.
  • Brainstorm 3 ways you might make adjustments to your budget to meet 1 of those goals.
  • Consider working with a financial planner either on a on- time basis or as an ongoing check-in relationship
  • List anything you pay for but don’t use, including:
  • Monthly subscriptions
  • Dry cleaning
  • Meal delivery services
  • Gym memberships or fitness studio punch cards
  • Cable (do you really use all 20 channels or just the same 2 over and over that you can get from a reduced subscription or a streaming service?)
  • Your landline phone (when was the last time you actually used it?)

The idea with the lifestyle inventory is not to identify spending so much as to identify choices you make to live your life. This way, you will start to see ways that you have begun spending a bit more money here and there without realizing that the items or services you buy are not adding the kind of value to your life that you expected.

Be conscious of inflation

Remember that national inflation doesn’t stop. The average cost of living stayed relatively stable in 2018, but all eyes are on 2019 to see what happens next. Inflation affects the overall economy on a macro level, but also each of us on a micro level as gas prices, food prices, and mortgage interest rates, among other things, increase.

Value experiences over things

Life experiences create memories that stick with you. Bigger than that, they help you grow as a person and professional, and so the value of travel or time spent with friends or volunteering is often far greater than anything you could buy.

Deal with debt

Or better yet, avoid it entirely, if at all possible. Or, at least, avoid adding even more debt. Be sure to have a plan for any debt you have because it won’t go away on its own. Hint: fee only financial planners are great at helping with this.

Consider your surroundings

Think about your city, your friends, and your lifestyle. Do you find yourself eating out several times a week because that’s what everyone else does and you want to go with the flow? Do you have colleagues who like happy hours and you experience a strong case of fear of missing out if you don’t go with them?

Do these activities jibe with your long-term personal goals? Are you making conscious choices about your discretionary spending, or are you going with the flow?

You’ve identified the creep. Now what?

Now that you have done the work to identify areas in your budget where your spending is increasing incrementally, creating your own sort of personal inflation, it’s time to get busy deciding what to do about it.

Practice mindfulness

One of the easiest ways to keep your spending at the forefront of your mind is to keep a log. There are many apps that will make this easy. You simply enter in whatever you spend and put it in a category like “rent” or “food” or “entertainment.”

Many free apps will create charts to show you visually how much you spend on what. Then, you can see month over month where your money is going and decide how you feel about that. Once you make it a habit to log everything, you start also making a habit of being mindful of your choices. Do your choices advance or hinder your short or long term goals?

Create a budget

A budget is always a good idea and is a useful tool. Like your lifestyle inventory, a budget lists expenses as well as the money you have coming in. While a lifestyle inventory is useful on an annual or semi-annual basis, a budget is something you should maintain monthly. Budgets are not meant to be restrictive. A budget is simply a way for you to keep track of your expenses and make some mindful, meaningful decisions about how you want to spend versus save your hard-earned money.

Get a side gig

Did you know that more than 44 million Americans have a side hustle?

Side hustles can take many forms. Consider whether you would prefer freelance work or part-time work.

Freelance work can be job by job, is typically short term, and you work when you want. Some examples of freelance work are copywriting, graphic design, or calligraphy.

Part-time work tends to be working for a specific employer a set number of hours of week, such as working at a bookstore, coffee shop, in an office, or at a retail store.

Taking on extra work can seem overwhelming when you already have a full-time job, and a life that you’d like to enjoy living. The best part about a side gig is that it doesn’t have to be long-term. If one of your short-term goals is to go on a vacation, you might look for enough work to cover the costs of the trip. Put that money aside in your fun fund every month until you have what you need, and then stop taking side gig work.

Or, you might find that your side gig lets you use skills or interests that lie dormant in your full time job and so provide a creative outlet for you. Many people work extra hours because the added structure in their day actually improves their time management and offers creative fulfillment in their lives as well.

The big picture

If you realize that lifestyle creep has gotten you down, do not worry. Remember, you are in control. The important things to remember are that it’s okay to have fun, there is no reason to be mad at yourself for a little extra spending, and you can absolutely curb that spending to rein in the creep.

Remember to be mindful of your choices, and consider putting in some extra time at a side gig to close the gap. That way, you can continue moving forward in pursuit of your goals and dreams while keeping your spending in check as well.