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There’s a saying that goes, “more money, more problems.”
While some might think increased income would be a blessing, this isn’t always the case.
Research shows that approximately 60% of millennials live paycheck to paycheck. Why?
It’s due to a little thing called lifestyle creep.
But what is lifestyle creep, and how can you avoid falling victim to it?
In this post, I’ll walk you through what lifestyle creep is and the actionable steps you can take to avoid it.
Ultimately, you will put yourself in a stronger financial situation and have more opportunities to grow your wealth.
Table of Contents
How To Avoid Getting Caught Up In Lifestyle Creep
What Is Lifestyle Creep?
Lifestyle creep, or lifestyle inflation occurs when your income increases and your discretionary spending increases as well.
Some people might think that the extra income from a raise allows them to splurge more often.
This splurge might take the form of fancier lunches, expensive clothing, or even upgrading to a new apartment.
After all, you can afford it, right?
In many cases, however, people don’t realize they are guilty of lifestyle creep.
They see their increase in spending as the result of just living life.
Instead of looking at how they are not being clever with how they consume things, they look at how the raise they earn isn’t able to keep up with their spending habits.
Few people talk about the social aspect behind some of those impacted by lifestyle creep.
For example, imagine getting a valuable degree that allows you to land a high-paying job.
While earning your salary, you see the things your co-workers own, like a big house, luxury car, etc.
You think that since you are earning the same amount of money, you should have these things too, so you buy a new car and a larger house.
The problem is that you now have more expenses and less money to plan.
These extra expenses offset any increase in income you might experience.
And as the cost of things increases, you might have to get into credit card debt to make ends meet.
While a raise can be exciting, you must be aware of lifestyle creep and its impact on your financial health.
How Can Lifestyle Creep Impact Me?
Lifestyle inflation sneaks up on you slowly and steadily until you realize that your personal finances have essentially been ruined by how you consume things.
But how exactly can lifestyle creep affect you?
Here are some of the most common ways.
#1. Additional Income Leads To More Debt
Those who experience lifestyle inflation might face a significant amount of debt.
Suppose you are in a field where degrees are commonly expensive.
In that case, you carry student loan debt and all the monthly expenses with this high-paying career.
If you’re not careful, you might spend more than you have, relying on new debt to buy everything you no longer have the cash for.
Relying on credit cards only plunges you further into debt and effectively ruins your credit.
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And as your debt balance grows, you are paying more interest charges, meaning you have to keep paying more each month, so your credit card balance doesn’t balloon in size.
#2. You Don’t Have Enough Income To Pay Regular Expenses
While debt can certainly be concerning, there are far more worrying things to concern yourself with if your spending outpaces your income.
For example, what happens when you spend so much that you don’t have enough money to pay your monthly bills?
In these extreme situations, you might not be able to buy gas for your car, pay rent, or pay for groceries.
All these can be extremely stressful and disheartening as you go from having extra money to not having enough to lead your life.
Things don’t end this way for everyone, but it’s certainly something to keep in mind.
#3. You Turn Away Opportunities
Some people succumb to lifestyle creep because they find themselves in a position where they feel pressure to participate in the same things as their peers.
Because they don’t have enough cash to afford their lifestyle, they may have to move elsewhere where opportunities aren’t as abundant.
This shakeup can be just as difficult to cope with as the previous point, illustrating how much spending with reckless abandon can affect your lifestyle.
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How Do I Avoid Lifestyle Creep?
Now that we have a better understanding of what lifestyle creep is, it’s important to learn how you can avoid lifestyle creep.
By avoiding it, you will stay in good overall financial health.
The good news is that you can do some simple things to ensure your finances are in order.
Having a monthly budget is the foundation of any solid financial strategy, which also applies to lifestyle inflation.
Suppose you want to ensure that you’re not making any frivolous purchases that can impact your financial stability. In that case, you must have a strict budget.
Understand budgeting isn’t supposed to restrict your spending to a point where you don’t enjoy living.
Instead, it is a system you create to help you spend your hard-earned money in ways that make sense and bring you happiness.
Make it a point to limit how you spend your discretionary income and budget for savings.
Finally, make sure you review your spending regularly as the price of things increases.
When this happens, you can make adjustments, for example, canceling cable TV and switching to a streaming service.
#2. Save Money In An Emergency Fund
One of the most basic principles of personal finance is to have an emergency fund.
Having cash set aside in a savings account for unexpected expenses ensures you don’t go into financial ruin when something you didn’t plan for happens.
In addition to having the cash to pay for these expenses, you will also have comfort and security knowing that if something happens, you can survive.
#3. Save For Larger Purchases
Another part of saving money is to save for more significant purchases.
For example, maybe you want to take a vacation next year, or you know you will need a new roof in the next ten years.
By putting money aside for these expenses, you smooth out the overall costs.
For example, if a new roof costs you $5,000, what is easier to handle, spending $5,000 at the time or putting away $100 a month for a few years before you need the roof?
An additional benefit of saving for big purchases is you have more time to research the item and its related costs.
This research can save you a lot of time, money, and headaches when buying.
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#4. Put An Emphasis On Your Retirement
While it is essential to enjoy today, you cannot do so while putting your future at risk.
As a result, you must ensure you save a percent of your salary in retirement accounts.
Investing for your future ensures that your tomorrow won’t be something you don’t enjoy because you don’t have any money.
So start putting 5-10% of your monthly salary towards retirement.
#5. Think Through Your Spending
While rewarding yourself and splurging every once in a while isn’t a bad thing, it is important to ask yourself, what is the most responsible way that I can spend this money?
For example, let’s look at buying a new car.
You might see a car you like, and as long as the monthly payment fits your budget, you believe you can afford it.
But you can’t just look at the monthly car payment. You have to look at the overall cost.
When you do this, you see that the car will cost you $56,000. Can you afford it if you make $50,000 a year?
You would be better off buying a less expensive car and putting the difference towards other goals.
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#6. Ignore Your Raise
For many people, more income means new necessities they have to have, which is how lifestyle creep happens.
You keep spending more and more every time you earn a raise.
To combat this, ignore your next raise.
Increase the money you put towards your retirement or save the money instead.
Having more money doesn’t mean you have to spend it.
Saving it can lead to a much more enjoyable and better life.
#7. Find Ways To Be Happy Without Breaking The Bank
You don’t need to keep up with your peers to live a lifestyle you love.
Remember this if you find yourself suffering financially.
Rather than taking expensive vacations every year, look for ways to be happy without breaking the bank.
Maybe take a less expensive vacation or low-cost trips around your city.
It could even mean living in a more affordable area.
Remember, you’re in control of your spending.
#8. Pay With Cash
Avoiding lifestyle creep can be done simply by avoiding credit cards and paying with cash instead.
When you pay cash for everything, you quickly realize the actual cost.
And it allows you to determine better if the item you are thinking of buying will benefit your life or not.
So try paying cash for everything you buy for one month and see how big of an impact it has on your bottom line.
#9. Set Financial Goals
When you have financial goals in life, it is much more challenging to spend money without thinking.
Instead of buying everything you see without much thought, when you have a financial plan, you are more aware of how you spend and are more likely to save.
If you don’t have a plan in place, I encourage you to brainstorm some financial goals and how you plan to achieve them.
#10. Understand More Money Isn’t The Solution
Too many times, people think if they just earned a more significant raise or got a new job, this extra money would solve their financial problems.
The reality is that no amount of money solves this problem because the more money you earn, the more you will spend.
You can have unlimited discretionary income increases, but you will always feel like you don’t have enough.
Until you control your needs and wants and spend money more thoughtfully, you will always struggle with the tug of war of lifestyle creep.
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The story of lifestyle creep only ends well when the person spending money to fund their new lifestyle realizes that they’re overspending.
The only thing worse is the person who doesn’t realize they are guilty of lifestyle creep.
You must take a hard look at your finances and see if you are living within your means and working hard to avoid lifestyle creep.
While it will be hard in the moment, your future might be brighter and more enjoyable the sooner you get back on track.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.