Takeaway
- Lifestyle creep happens when you spend more as your discretionary income increases
- It can become problematic if it is uncontrolled and knocks you off your financial path
- There are ways to minimize lifestyle creep, including sticking to a budget, being mindful of spending, and automating saving and investing.
What is lifestyle creep?
When we earn more, we tend to spend more. After all, we want to treat ourselves for doing better, working harder, and progressing. It’s a great thing!
The challenge is when the “once-in-a-while” treat is not one-time, and the spending continues. Purchases stack over time to become bigger and bigger. The increase in spending makes it hard to achieve other financial goals, such as saving for retirement and paying down “bad” debt.
This is lifestyle creep.
Lifestyle creep describes when an individual’s habitual spending increases alongside their discretionary income.
The form and amount of spending vary. It could be minor – such as an extra night out every week – or something more extravagant – such as a few more international trips annually. Regardless, these changes snowball into large sums over time.
Also, the keyword here is “habitual,” where small incremental spending becomes part of daily routine, and many purchases shift from “wants” to “needs.” This change in mindset and behavior completely changes the trajectory of a financial plan.
How to avoid it?
Here are some ways to avoid lifestyle creep.
- Set a budget. If you have a budget, stick to the budget. Be ruthless when you compare your spending against your budget. Your budget was created for a reason – to keep you on track to achieve your financial goals – so you should leverage it as the guardrails it’s supposed to be. Create one if you don’t have a budget (see here).
- Be mindful and intentional. Lifestyle creep occurs more easily when you are not mindful of your spending habits. It’s worth asking yourself – “do I really need this?” – before making any purchase. This simple question can help you stay intentional with every expense.
- Automate saving and investing. You could also minimize the impact of lifestyle creep if the extra dollars never hit the bank account but are saved and invested elsewhere. By automating investing, you could hack your habits to invest and save first.
Final remarks
It’s important to note that lifestyle creep is not inherently wrong. The problem is when it knocks you off your financial plan.
Disclaimer: The contents of this website are opinions and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.