Lifestyle creep is everywhere, whether we’re aware of it creeping into our daily lives or not. Just what is lifestyle creep, and how can you avoid it? Take a look at what we’ve found out about this tricky money pit.
What Is Lifestyle Creep?
Lifestyle creep is a pattern where as income rises, so does spending. When your spending increases faster than your income does, then you’re headed towards a path of financial trouble – and you’ve fallen into the trap of lifestyle creep.
Who Does Lifestyle Creep Affect?
You might think that only a student who recently started their first job is susceptible to lifestyle creep. But the truth is more bleak. Lifestyle creep can affect anyone who has recently started a higher-paying job, earned a bonus, or received a raise.
It doesn’t matter if you’re a student just starting out in the professional world or a seasoned employee with decades of work experience behind you. If you’ve always had to live within a certain budget and now your income is high enough that you feel comfortable spending more, you could be susceptible to lifestyle creep.
Adjusting to a Higher Income
When you’re used to a smaller bank account balance, it can be difficult to adjust to earning a professional’s salary. It might be tempting to spend recklessly once the money is in your account.
A higher paycheck isn’t a blank check to spend however you want. Be aware of the signs of lifestyle creep so you can determine if you’ve fallen into this spending trap.
The Signs of Lifestyle Creep
There are few telltale signs that you may be subjecting your bank account to lifestyle creep. For example, if you used to always pack a lunch from home to take with you to school or work, but now you always buy lunch at a restaurant with your coworkers, then that’s a good sign that the extra room in your bank account is giving you a sense of false security.
It’s true that the little things, like buying lunch out, can add up quickly and make a significant dent in your bank account. However, it’s important to recognize that recurring monthly bills are most likely going to be the biggest factor in whether or not you’ll be in financial danger because of lifestyle creep.
For example, maybe you drove the same old hand-me-down car for years and you never had a car payment. Now if you decide that your new job means it’s time for a new car, you need to adjust your spending accordingly. This lifestyle choice doesn’t just mean a new car payment. You should plan to pay higher insurance premiums, too.
How To Stop Lifestyle Creep From Taking Over Your Life
For many people, it’s not easy to admit that they’ve been spending more than they should. That moment of reckoning with themselves comes with a feeling of shame. They wonder how they let their financial situation get so bad.
On the other hand, some people refuse to admit it at all. They’re firmly in denial about their lifestyle creep. They completely believe that because got the promotion or the raise that they deserve to spend their money any way they like.
It’s important to know two things: one, that you don’t need to feel shame over letting lifestyle creep into your life, and two, that if you remain in denial about your lifestyle creep, it could lead to serious consequences for your financial situation.
Just like with many other problems, whether it’s overeating or spending too much time on TikTok, the first step in fixing the issue is acknowledging that it’s a real problem.
Start with a Spending Audit
Not sure if you’re really going through lifestyle creep or if you just had a bad couple of months? Start with a spending audit. Take a detailed look at where your money went for the past six months.
To do this, you might want to print off your bank statements or credit card statements and sitting down with a highlighter. Or maybe you’d rather set up a couple of spreadsheets and a color-coding system.
No matter how you approach it, take the time to find out exactly where your money is going.
Identify Your Top Problem Areas
Once you have a clear picture of just where your money is going, it’s time to identify your problem areas. If you’re spending $400 a month on buying lunch, for example, that’s probably a problem area in your life.
Sometimes a problem area is related to one major purchase. For example, if you thought you could afford a monthly car payment of $800, but it turns out that $500 is the better fit for your budget, you have a major decision to make.
The number of problem areas you identify will depend on your spending. At the beginning, try to focus on fixing one at a time. That could mean saying “no” to lunch every day except Friday, or it could mean trading in your car for a less expensive vehicle.
Set Your Budget
Many people experiencing lifestyle creep had a budget before, but once they started their new job or received a raise, they let that budget slide. However, you have to remember that just because you have more money in your bank account today than you ever have before, you can’t just spend it.
More money in your bank account doesn’t always mean that you’ll be able to afford three nice meals out a week in addition to all your monthly bills.
You don’t have to live the way you did before your income increased. But you should still build a budget based on your priorities first, and then choose the areas where you want to increase your spending.
Find a budgeting system that works for you. You may want to use an app like Mint or You Need a Budget if you’re more comfortable budgeting on your phone. If you’d rather spend time on the computer, you should use spreadsheets like Excel or Google Sheets to keep track of your income and your spending. Or, perhaps using good old pen and paper is the best way for you to stick to a budget.
The most important part of choosing a budget tracker? Pick something that you’ll actually stick to and that you won’t give up on!
Plan for Tax Time
It’s easy to fall into the trap of thinking that every cent of your next raise will go to your pocket. However, remember to factor in how much you’ll need to pay in taxes before you plan to, or worse yet, actually do spend the money.
You may be able to figure out how your raise will impact your tax situation on your own, or you might want to speak with your HR representative or even your accountant.
Think About Retirement
One wonderful benefit of higher income is that it gives you the opportunity to contribute more to your retirement account. While it can be difficult to plan for Future You when Present You wants a vacation to Bali, you need to have a plan for your retirement years.
Working with a financial advisor can help you set yourself up for the future. Your company may partner with a financial firm, or you might need to find one on your own. If you plan to move to a different company or switch jobs several times during your career, you may want to find a financial advisor of your own who you can rely on no matter where you’re currently employed.
Don’t Give In To Social Pressure
Maybe the reason you started going out to lunch every day was because you felt pressured by your coworkers. Or, maybe you only bought a new purse or shoes to fit in with your friend group.
Social pressure doesn’t suddenly disappear the minute you graduate high school. In fact, in some circles that pressure can get much worse. Don’t think that it won’t affect you any more just because you’re older.
Lifestyle creep can absolutely happen as a result of trying to fit in with the crowd. So, don’t let your desire to fit in push you towards unhealthy spending habits.
You did the work of identifying your problem areas and setting your budget. When social pressure comes up and tries to influence you to ignore your budget, you need to take a close look at just what you’ll lose – peace of mind and money to begin with – when you give in. You also may want to re-evaluate who you let influence your financial decisions.
Treat Yourself, Too
Once you’ve taken control over your lifestyle creep and put yourself in a stronger financial situation, it’s important that you remember to take care of yourself as well. If you never spend any money on anything fun, you’ll lose some of the joy you have for life.
You need to have hobbies and enjoyable activities in your life. While your hobby shouldn’t be recklessly spending all of your extra income, you should absolutely treat yourself.
Take a close look at your budget and plan for when you can treat yourself and splurge on something important to you. It could be a spa day or a new pair of Nikes. As long as it’s something you want to reward yourself with – and as long as it doesn’t break the bank.
Read More: Common Budgeting Mistakes Revealed