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What Is Lifestyle Creep?

CEO Tinh Phung
So, you've recently received a raise or landed a new job with a higher salary. Congratulations! But have you thought about what you'll do with the extra money? If you're not careful, lifestyle creep can...

So, you've recently received a raise or landed a new job with a higher salary. Congratulations! But have you thought about what you'll do with the extra money? If you're not careful, lifestyle creep can derail your financial progress. Let's delve into what it is and how you can avoid it.

Understanding Lifestyle Creep

Lifestyle creep occurs when your expenses increase in proportion to your income. The shift happens so subtly that you don't even notice it. The name itself encapsulates this phenomenon perfectly. Some may refer to it as lifestyle inflation, but the essence remains the same.

While lifestyle creep may not necessarily lead to overspending, it can impede your financial goals. A raise or extra income can significantly contribute to achieving your objectives sooner. However, if you mindlessly spend it on impulse purchases, dining out, or unnecessary expenses, your lifestyle will gradually take over.

Lifestyle creep is not restricted to a particular life stage. Whether it's a raise, a side hustle, or a promotion, whenever your income increases, it's vital to be intentional with your money to avoid falling victim to lifestyle creep.

Indicators of Lifestyle Creep

How can you identify if you're experiencing lifestyle creep? Here are a few tell-tale signs:

Your money goals have stagnated

We all have financial aspirations. Are you aiming to build a robust emergency fund, eliminate debt, save for a dream vacation, or invest in retirement? Achieving these goals is within your reach. However, if your income increases but you fail to make progress towards these objectives, it's a clear sign of lifestyle creep.

Your spending rises, but your savings remain stagnant

If you're naturally inclined to spend money, like treating yourself to a fancy latte every morning, it's crucial to be mindful of where your increased income goes. If your spending escalates while your savings remain stagnant, it's a strong indication that lifestyle creep is setting in.

Little luxuries become regular habits

Remember when indulging in a fancy latte on the way to work felt like a treat? Now, it's become a routine part of your morning. This shift could also apply to other expenses, such as daily lunches, weekly pedicures, or pricey cocktails. While there's nothing inherently wrong with treating yourself, it becomes problematic if these "treats" transform into normal and necessary expenditures. This change signifies the emergence of lifestyle creep.

The Harmful Effects of Lifestyle Creep

It's important to recognize that the issue isn't buying nice things per se but rather mindless spending. Lifestyle creep poses a threat to your financial health and security. By unwittingly trading the future for the present, you jeopardize your long-term financial well-being.

So, when you receive a raise or experience a boost in income, take a moment to celebrate with loved ones. Then, formulate a plan for how you'll allocate that money. Otherwise, time will pass, and you won't even realize where your increased income went.

Strategies to Combat Lifestyle Creep

Let's put my advice into action. Here are seven effective ways to combat lifestyle creep:

1. Plan for the future

Base all your financial decisions on what truly matters to you. Reflect on your values, set clear financial goals, and display visual reminders to stay motivated in your fight against lifestyle creep. Investing effort today will pave the way for the tomorrow you envision.

2. Embrace budgeting

Budgeting is key to managing your finances effectively. It provides a roadmap for your money, ensuring that it aligns with your values and propels you towards your future aspirations. Without a plan for your extra income, lifestyle creep becomes a real threat. Take control by establishing a budget and meticulously tracking every transaction.

3. Reduce unnecessary expenses

You've likely developed certain spending habits that aren't essential. Review your budget and identify areas where you can cut back without compromising your lifestyle. Redirect these funds towards activities that truly align with your goals.

4. Automate your savings

Streamline your financial progress by setting up automatic transfers. If you aim to bolster your savings, arrange for a portion of your paycheck to go directly into your savings account. Alternatively, schedule recurring transfers from your checking to savings account at regular intervals. By proactively managing your money, you regain control over where it goes.

5. Assess your money mindset

Your attitudes and beliefs about money shape your financial decisions. Understanding your unique money mindset empowers you to take control of your life. Delve deeper into this topic through courses or resources that explore the relationship between your mindset and financial decisions.

6. Detox from social media

Comparing yourself to others on social media can perpetuate lifestyle creep. Conduct a social media cleanse by unfollowing accounts that foster discontent or pressure you to make unnecessary purchases. Take regular breaks from social media to foster genuine connections and stay true to your personal values.

7. Practice generosity

Giving back to others helps shift your focus away from self-indulgence. It changes your money mindset and positively impacts both your life and the lives of those you help. Embrace generosity as a means to combat lifestyle creep.

Conquering Lifestyle Creep

If you find yourself caught in the cycle of lifestyle creep, don't worry. Breaking spending habits is challenging, but it's entirely possible. By doing so, you'll alleviate the stress of feeling like you have nothing to show for your increased income.

However, before implementing any of these changes, you must have a plan in place—a budget. To assist you, consider using EveryDollar, a free budgeting tool that enables you to create and track budgets effortlessly. Start today, beat lifestyle creep, and align your money habits with your goals—one EveryDollar budget at a time!

7 ways to fight lifestyle creep