Lifestyle creep is a typical pattern of spending more money than what you earn, getting used to different luxuries and conveniences as the new life norm. Lifestyle creep usually occurs whenever someone acquires a pay raise, a better job with a higher income, or pays off debts.
The problem arises when people start spending more on their lifestyle than they can afford. This bad habit results in them falling into debt and borrowing from friends or family to cover up for the shortfall. The only way out of this lifestyle creep cycle is to stop living beyond your means.
Lifestyle Creep Synonym
The synonym of “Lifestyle Creep” is “Lifestyle Inflation.” As we make more money, we tend to spend more money and it slowly creeps up on us to where we always feel broke no matter how much we earn.
What Causes Lifestyle Creep?
The causes of lifestyle creep may vary from person to person. For some reason, most people find that after they get a significant raise in salary, they want to buy bigger homes, nicer cars, better furniture, etc. Some people seem to be inherently comfortable living outside their means, even if they don’t have plenty of money to spend.
However, others begin to see themselves as better than those friends who still live paycheck-to-paycheck and don’t own any luxuries. So these people start looking around for ways to live a luxury lifestyle without actually having the extra income.
Here Are Some Of The Common Causes Of Lifestyle Creep
1. Financial Debt
Most Americans have lots of financial debt — credit cards, student loans, auto loans, mortgages, etc. When you get a hefty pay raise, it doesn’t take long before you realize that you could easily afford to drop all of this debt if only you had enough money in savings to pay down your debts.
Therefore, you should save up some cash now so that when your income increases again next year, you will have more money available to pay down your debts! However, life happens, and your savings account can quickly be drained by utility bills, groceries, auto loan payments, and credit card payments.
When this happens, there isn’t any money left over in your emergency fund to pay down your debts because your expenses have continued to rise along with your increase in income. You simply don’t know how to stop lifestyle creep until you’ve dropped into severe debt again.
2. Hitting Your Limit
What happens when you hit your limit? If you aren’t careful, it’s easy to get in the habit of buying more stuff than you need, which leads to an accumulation of clutter and maybe even a bit of wastefulness. As time goes on, you find yourself unable to deal with your overflowing closet, basement, garage, or attic full of clutter.
And if you haven’t already lost track of your finances, your poor financial decisions eventually lead you to run out of money in your emergency savings account. So instead of trying to sort through everything by hand, you pass the mess on and let your spouse handle it all. This can lead to resentment towards you from your spouse for having to pick up the pieces of your mess.
3. Over-the-Top Spending
Some people find it difficult to say no to spending money on frivolous items. They think that if they don’t buy something new, they are cheap. Others buy too many gifts instead of investing the energy and creativity required to come up with unique holiday presents. These purchases often cost more than expected since gift purchases tend to add up quickly.
Why Is Lifestyle Creep Destructive?
Lifestyle creep is destructive for several reasons, as discussed below:
1. It Makes Us Feel Bad About Ourselves
One thought is we deserve fancy clothes, nice houses, and luxury cars if we work hard. This way of thinking leads us to believe that we should spend and enjoy our newfound wealth rather than save it. When this happens we work longer hours and sacrifice more to support our expensive lifestyle.
If we see ourselves becoming increasingly materialistic, it makes sense that we would worry that we will be unable to sustain our current lifestyle. While it’s true that all humans experience moments of stress and worry from time to time, chronic worrying can harm our health.
So why do people worry about their finances yet continue to spend? One reason is that we have absorbed the cultural values of consumerism, which tell us to focus on the present rather than worry about the future. Also, people who are worried about incurring large amounts of debt are likely concerned that they will lose control of their lives at some point.
3. Leads To Financial Stress And Dissatisfaction
There is always something bigger and better out there that we need to purchase, such as a bigger house, a fancier car, etc. This cycle can continue indefinitely until we reach our “limit.” Once this threshold has been reached, we feel guilty about spending beyond our means, and we start looking around for ways to cut back but often don’t have the willpower to do so.
Examples Of Lifestyle Creep
Below are some examples of lifestyle creep that we’ve come across today:
1. Overspending On Vacations
Some people take extended trips during the holidays, but they exceed their budgets by tens of thousands of dollars. If you plan on taking an expensive trip such as a cruise or going to Disney World, make sure you budget accordingly.
2. Overspending On Gifts
Gifts are lovely unless you spend way beyond your earnings limit. Overspending on gifts that require monthly expenditures could cause serious money trouble. For example, if you plan to give someone a laptop as a gift using your credit card, you will be required to make monthly payments on that credit card.
Many people find themselves in debt because they have accumulated credit card debt they cannot repay. The problem occurs when people realize that they can no longer sustain their lifestyle but cannot reduce expenses.
This trait is particularly applicable to those with excessive spending habits. To avoid becoming trapped in debt, many Americans turn to payday loans. However, these types of loans do not solve the underlying problem but worsen the situation.
You could easily blow through hundreds or even thousands of dollars in just a few months from overspending with your credit cards.
3. Buying Too Much Stuff
Many people get into the habit of purchasing items that they think they “need” but they’re actually “wants.” Even worse, many people justify unnecessary purchases because they can’t live without certain things. But, unfortunately, these purchases won’t help you accomplish your financial goals any faster.
Focusing on contentment is the secret of the wealthy. They learn to be happy with what they have rather than always longing for more. When you try to acquire more than you need and don’t have the financial ability to sustain your lifestyle, you will soon become unhappy because you will begin to suffer from financial anxiety.
4. Spending Beyond One’s Means
Spending beyond your means is one of the most destructive side effects of lifestyle creep and it happens when you spend more than you earn each month. Even if you recently received a raise, increasing your spending can lead you down a path of financial ruin.
Even if you are saving diligently, it is still possible to exceed your income. If you find yourself doing this regularly, you might want to look into setting up an automatic deposit into a savings account. Accumulating money into your savings will ensure that you remain within your limits.
How To Prevent Lifestyle Creep
Preventing lifestyle creep is easy if you learn to identify early warning signs. Below are five ways to keep yourself from falling prey to lifestyle creep.
1. Keep Your Expenses Low
The most effective tip is simply to cut back on your expenses. Many Americans spend far more than they should because they convince themselves they need things like fancy cars and big houses. If you live frugally, you will have less stress regarding your finances, and you’ll also have fewer reasons for buying pointless consumer goods.
2. Learn About Your Spending
When you discover where your money goes, you’ll be better equipped to maintain control over your expenses. There are several free online tools to monitor your spending. Look for sites that offer you detailed information about where your money goes, including the amounts.
3. Reduce Temptation
The temptation to spend exists everywhere, even in your wallet. Make a conscious effort to remove temptation from your home by eliminating junk food, alcohol, cigarettes, drugs, and anything else that could potentially weaken your resolve and put you in a poor mental state.
4. Avoid Impulse Shopping
People generally respond well to warnings; therefore, you must learn to recognize impulse buys before you make an impulsive purchase. If you see something you want, ask yourself whether you really need it. Use the 24-hour rule for large purchases. If you want something, wait 24 hours to think about the purchase before you make the move.
5. Track Your Progress
It is often difficult to change an old habit. Therefore, you may need to step outside your comfort zone and create new behavior patterns. For example, you might want to set financial goals or make a chart to track your progress, such as “Save $100 per week” or “Sell two items on eBay.” Once you achieve your goal, reward yourself without going further into debt.
You can prevent lifestyle creep if you take steps to control your budget and avoid unnecessary purchases. Paying down debt, living frugally, and avoiding temptations are the best ways to prevent yourself from falling victim to lifestyle creep. In addition, you can help yourself avoid lifestyle creep by making minor changes in your daily routine.
What To Do When You Start Making More Money
When you start making more money, it doesn’t necessarily mean that you should throw caution to the wind. Take note of your financial situation when starting and consider how increased spending will impact your overall finances.
If you plan to change jobs often, you shouldn’t go wild just because you have extra cash coming your way. Remember, every job comes with pros and cons. By keeping this in mind, you will find that your decisions regarding your finances are much more innovative (and safer) by not spending everything you make but keeping a healthy cash savings fund.
Tips For When You Start Making More Money
1. Save Some Of Your Earnings
Before buying that fancy car, consider saving some funds to pay monthly payments. It’s much better to save than borrow money. In addition, if you can manage to save an additional amount each month, your anxiety will thank you and you may end up saving up enough cash to buy the vehicle outright.
2. Reduce Spending On Unnecessary Things
Before spending your earnings, check your budget and see where you can cut back a little bit and perhaps increase spending in another area. After all, you deserve to enjoy life – not worry about paying the bills.
Consider cutting back on unnecessary expenses such as entertainment, eating out, smoking, alcohol, and gambling. It would help if you reduced everything you spend money on except necessities and a few important splurges you can financially afford.
3. Set Up Monthly Goals
After you start earning more money, you want to set up goals. Think about where you want to be financially by next year. You may choose to save some extra cash or even invest in property. Once you decide which direction to go in, stick with it until you reach your goal. You’ll need to stay disciplined so you can achieve your desired outcome.
4. Pay Off Debt
If you are unable to pay your credit cards off in full each month, you have a debt issue. Consider paying down your debt so you can take advantage of credit card points by paying the balance off in full each month. Then, once you’re done repaying your debts, you’ll be able to focus solely on building wealth instead of worrying about your debt load.
5. Invest Instead Of Saving Every Cent
Consider setting aside at least 10% of each paycheck to invest. Investing is better than saving because it generates profits that hopefully keep up with inflation. So if you have some extra cash lying around, consider putting that cash into your emergency savings first and then into a retirement savings account. In addition, look at places like mutual fund companies where you can invest in different stocks.
Tips For Avoiding Lifestyle Creep
Below are tips for avoiding lifestyle creep:
1. Understand How Much Money Is Enough
You should always stop to ask yourself if you need something new or a significant upgrade when you’re deciding how much money you should spend and how much it requires you to earn. This is very important because there’s no point wasting your hard-earned money on something extravagant that you could live without.
2. Don’t Spend More Than Your Income Generates
Many people get stuck living beyond their means because they only focus on how much they make which translates into how much they can spend. However, if you want to build wealth, you must learn to be careful about discretionary spending.
Remember that it’s never okay to blow through your paycheck and expect things to improve. That doesn’t mean you should become tight-fisted, though; you need to find ways to limit how much you spend every week while still enjoying life.
3. Set Goals
When you start planning how you want to change your financial situation, it becomes easier to control other aspects of your life. This includes how much you earn and how fast you spend your money.
Unfortunately, it’s easy to fall into an unhealthy cycle of spending too much money to make ends meet. However, by setting goals, you can ensure that your finances remain healthy throughout the year.
4. Find The Sweet Spot Between Living Well And Saving
The sweet spot between living well and saving isn’t about being rich and living a lavish lifestyle. It’s about finding a way to balance your finances without depriving yourself of your basic needs, such as health care and shelter. The difference between the two extremes is how much cash you need to generate and accumulate from savings and investments, plus how much income you’ll need to maintain your current lifestyle habits.
Lifestyle Creep Symptoms
Signs of Lifestyle creep may include:
1. Spending More Than Your Income Generates
You are probably familiar with the concept of living above your means. The problem is when you start spending more than your income generates. If you’re using credit cards for everything and running up debt while doing so, could be a sign of lifestyle creep.
However, it’s important to understand that your lifestyle does not determine your borrowing ability. There are plenty of people who live below their means and still manage to take out loans.
2. Not Having Time For Self Care
When you have a lot of stress and pressure, it’s very easy to neglect your mental wellbeing. Unfortunately, this often leads to further problems which can tie into money issues. When you neglect self-care, you end up feeling exhausted and worn down. This causes you to become less productive at work and negatively impacts your relationships and overall quality of life.
So, take a mental break and take care of your body – your wealth is directly tied to your health!
3. Not Paying Attention To Financial Facts
In today’s society of smartphones and computers, we sometimes forget to give our financial information the attention it deserves. Of course, our bank account statements deserve our full attention, but there are other things we could be looking at, as well.
A common symptom is ignoring any details regarding your retirement accounts. While it’s okay to check on them occasionally, ignoring anything concerning your long-term financial plan is a bad idea and could potentially derail your retirement plans.
4. Worrying Too Much About Money
We all worry about something, and most likely, your worries revolve around money. Whether it’s making sure you can afford the rent or buying food, money can cause anxiety and stress. However, worrying too much about money will do nothing for your actual situation.
Instead, focus on how you want to spend your time and energy. Focus on activities that bring you joy instead of stressful situations. Knowing what you should be doing to improve your personal finances is one thing, but another to go out there and act upon it.
How Do You Combat Lifestyle Inflation?
First, it helps to ask yourself why you are overspending to combat lifestyle costs?
Here are ways to combat lifestyle inflation:
1. Keep Track Of Your Expenses
If you notice you are starting to slip, stop using your credit card immediately. Go through all of your bills and carefully create a monthly budget. Your budget should include all of your monthly expenses from mortgage payments to daily coffees, etc.
Keeping records of all extra expenses and bill payments is imperative to identify which lifestyle decisions quickly drain you financially.
2. Analyze Your Savings
Most financial experts recommend setting up automatic transfers from your checking account into savings. If you’re not used to this kind of discipline yet, it can help motivate you to save additional money. You could even set up overdraft protection so that whatever is left after a certain amount is transferred to savings.
Of course, you need to be careful about withdrawing too much because if you run low on cash, you’ll find yourself in deep trouble. As much as possible, let your money work for you.
3. Get Rid Of Clutter
Some people pay a lot of money for expensive clothing or gadgets because they are obsessed with owning things. To avoid having this happen, declutter your closet and other rooms in your house. Start by getting rid of items that you no longer use.
4. Pay Your Bills Promptly
If you fail to pay your bills on time, interest rates and late charges will begin to snowball and it will become increasingly difficult to get your debt under control. Therefore, when you have a balance due, it is better to deal with it instead of postponing it.
5. Stay Away From Online Stores
Buying clothes, electronics, or even books online can be tempting because it’s convenient. However, if you want to stay within your budget stay away from the temptation of online shopping. It’s a slippery slope that often ends with impulse purchases.
6. Don’t Borrow Money
While there’s nothing inherently wrong with borrowing money, it can quickly catch up with you with the promise of low payments that go on forever. If you can avoid borrowing money, stay away from making other people rich by using their money. Get to a position where you are the lender rather than the borrower.
