Your Guide To Lifestyle Creep And How To Prevent It From Leaving You In Debt
The following column is the opinion and analysis of the writer. When you launch your career, the ultimate goal is to expand your skill set, obtain promotions or higher-paying positions, and increase your earnings, right? For many, a rising salary is a sign of more financial stability.
Unfortunately, though, that’s not always the case. “Lifestyle creep” can sneak up on you, leaving you with the same amount of money in your checking account as before your raise (or even in debt).
What Is “Lifestyle Creep?”
This phenomenon is much more common than you might think. Also known as “lifestyle inflation,” it refers to when people overspend following an income bump.
In other words, their lifestyle standards, whether that be a nicer apartment or a new car, increase alongside their new salary, leaving them without any extra money after all.
For instance, suppose you take on a managerial role at your company and are given a raise of $12,000 per year.
The income jump may make you feel as if you can finally afford to transition from a $1,500-per-month one-bedroom apartment to a $2,500-per-month two-bedroom apartment.
So, you sign a new lease, and technically, your latest salary allows you to make ends meet. However, by the end of that year, you haven’t saved any of your $12,000 bump; instead, every single dollar has gone to support your evolving lifestyle.
Don’t get me wrong: receiving a promotion is definitely a cause for celebration, and it’s completely okay to splurge every now and then.
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Yet, “lifestyle creep” tends to accumulate over long periods of time as your career advances, making purchases ranging from new cars and clothing to entertainment subscriptions and dining at restaurants feel necessary.
In turn, you’ll still be left stretching your raised earnings thin, and you probably won’t be storing away as much money in the bank as you’d anticipated after achieving your higher salary.
This pattern can be detrimental as the years pass by, particularly if you neglect to create an emergency fund or contribute to your retirement in favor of a lifestyle that outpaces your cash flow. And sometimes, the desire to maintain a certain way of life can plunge you into debt.
How To Spot “Lifestyle Creep”
Again, the urge to spend more after earning more is understandable. And no matter how glamorous some people’s lives may appear on social media, anyone can be affected by “lifestyle creep.”
So, being aware of the warning signs can help you reverse your spending habits before you get sucked in too far.
The first telltale signal of “lifestyle creep” is an unmoving savings account. Has the amount you’ve stashed away at the bank remained relatively the same for years, even in the wake of new positions and raises? If so, you’re spending all the extra funds you earn on an annual basis.
Next is a lack of budget. I am a firm believer that if you fail to plan, then you plan to fail. If you don’t take a close look at your actual month-to-month or year-to-year purchases, it is sickeningly easy to throw money away on seemingly insignificant buys that seriously add up.
The final sign is feeling out of control with your bills. Now, we’ve all had a paycheck hit our account before and been worried about covering our expenses. But is this a sinking feeling you’re dealing with every week or month?
Grappling with guilt or regret when you look at your checking account or credit card balances should not be your norm.
How To Prevent Or Reverse “Lifestyle Creep”
The most obvious strategy to prevent or reverse this phenomenon is to worry about your savings before spending money on any extra purchases.
One of my favorite tips is to treat your savings as a bill. Every week or two weeks, when you receive your paycheck, immediately transfer a designated amount of money from your checking account to your savings account while you pay the rest of your expenses, such as rent, car insurance, health insurance, etc.
If you operate this way, you won’t even have an opportunity to spend the money you intend to save. It’s now in a different account, already stashed away, and all you have to do is resist the urge to hit “transfer funds” and move it back to your checking.
Once you successfully do this, though, you’ll have to move on to step two: following a budget. Now that you’re prioritizing saving, your lifestyle will definitely change, so you have to decide what is most important to you and what can go.
Do you love getting to go out to dinner on Friday night every week? If so, perhaps you can cut down your entertainment subscriptions. Or, if you have a luxury gym membership at a top facility, maybe you can switch to a gym with fewer perks and a cheaper price tag.
Last but not least, keep in mind that the entire point of escaping “lifestyle creep” is to forge a better future for yourself. That’s why you must set some financial goals.
This part can be especially exciting, too. Don’t be afraid to think about what you want, crunch the numbers, and determine a consistent plan to make it happen. Maybe you’d like to finally pay off your student loan debt, buy a home, or retire comfortably.
Regardless, let your goals guide the way and fuel your motivation to stick to your new financial habits.
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