Are You a Victim of Lifestyle Creep?

by Nicole
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Having control over finances requires frequent examination of spending, saving, and investing habits. During this process, it’s important to be aware of a phenomena called lifestyle creep. I’d define lifestyle creep as an increase in discretionary spending habits simply because income has increased. Lifestyle creep is frightening because it literally creeps up on you and unless you are frequently evaluating spending habits, you may not even realize it’s happening.

In reality, lifestyle creep is to be expected. You can’t possibly live the same lifestyle you did in college as you do now as a full time professional. That being said, spending habits should always be in line with your beliefs and values. Although spending is inevitable, it should be done with care and thought to prevent unnecessary expenses.

How does it start?

Lifestyle creep, otherwise known as lifestyle inflation, often begins after college when you land your first job with a professional salary. You use your new job to validate buying new high end clothes and, of course, you need the shoes to match the outfit. Perhaps you even buy yourself a brand new shiny car with your sign on bonus. That car ends up costing you more than the sticker value though. The new car requires premium gasoline, the tax is higher because the car is valued higher than your last vehicle, and the insurance has also gone up. Oh, and don’t forget that membership to the car wash that you had to get because you’ve got to keep your new car looking fresh.

Your income has increased but so has the spending. This is how lifestyle creep occurs and we are all guilty of it. Lifestyle creep can manifest itself in several ways.

This is how lifestyle creep affected me:

  • Bought more organic foods
  • Went out to restaurants every weekend
  • Upgraded housing
  • Stopped for coffee on the regular
  • Shopped for higher end clothing and went shopping more frequently
  • Got my nails done every other week
  • Went to my esthetician every other month
  • Monthly gym memberships

This is how it has manifested in my life. Now think about ways in which it could be happening to you, too…

Your version of lifestyle creep might look totally different than mine based on what you value and what you like to spend money on. Read my article “Value Based Spending Habits”, here.

If you are making more money each year or taking home large bonuses, it is human nature to want to spend some of that money. After all, you earned it and deserve to spend it how you please. 

The positives and negatives of my own experience with lifestyle creep

Some of these spending habits listed above were conscious changes that contributed positively to our life. For example, from grad school to now, Justin & I increased our housing cost by 50%. That was a huge monthly payment to take on. But, we consciously made that decision based on our values. We wanted to love the place we came home to and we value comfort. Additionally, we realized our health needed to be a priority so, instead of exercising at home, we both bought gym memberships. To compliment the gym membership, we started eating more organic, wholesome, and healthy foods which of course, costs more money. Although our grocery bill has increased since pre-career days, we value what we put into our bodies. These are all conscious decisions we made but realize it is a form of lifestyle creep. It is our goal that despite promotions and raises, we will continue to live very similar to how we do now without adding more lifestyle creep. 

Lifestyle creep made its way into our life but because Justin & I are constantly evaluating our spending habits, we frequently make changes. I later realized the frequent nail and skin outings were overdone and I decided I no longer valued that enough to continue spending in that category. I reduced some lifestyle creep by ending this bad habit. Additionally, Justin started making cold brew at home. Although I still stop for coffee a couple times a week, his making coffee at home, will save us a large sum of money over the long term. Once again, it all comes down to what you value.

6 tips to prevent lifestyle creep (and still live your best life)

  1. Set financial goals. What do you want your net worth to be in 5 or 10 years? Keep that goal in mind when you have the urge to buy something new.
  2. Review spending regularly. We do this on a weekly basis. Ask yourself, did you spend more than you expected? Did you NEED everything you purchased?
  3. Reward yourself appropriately. Don’t feel as though you need to restrict yourself or limit purchases. If you get a $10,000 bonus perhaps you allot $3,000 of that to a vacation fund and invest the rest. Plan ahead to prevent frivolous spending. Don’t let this lump sum of money get you cocky. 
  4. Stay financially educated. Understand and research the importance of investing, compound interest, and tax optimization. Educate yourself and get excited about ways to live happy below your means. I wrote a 4 part series on these topics which you can find here.
  5. Find joy in non material goods. If you can be happy and joyful making less money that’s a great sign! When you do get the promotion you’ve been waiting for don’t change anything. Continue to live the life you’ve been loving and bank (really invest) the rest of the money! 
  6. Address bad habits before they begin. It’s hard to break a bad habit, especially after you’ve been doing it for many months, or years. Instead, think about what could become a bad habit. Notice trends. Have you been getting take out 3x a week? Have you been going out for drinks frequently after work? Find yourself stopping at Starbucks for an afternoon pick me up? Break them sooner than later.

Money matters

This is not to point to your faults in spending, it’s to open your eyes to lifestyle creep. As I admitted, I am guilty of it. I bought myself a $60 yoga mat when even 3 years ago I wouldn’t spend more than $15 on one! Justin and I travel and take about 2 vacations a year! We shop at farmers markets and buy organic meat, fruits, and veggies. The point is that we are aware of it and attempt to eliminate the negative versions of lifestyle creep whenever possible. Living below your means is crucial for your financial success. That does not equate to being cheap though, and that’s a very important distinction to make. 

Thinking about your long term life when it comes to money and finances takes a high level of maturity. It is not easy to wrap your head around how saving and investing now can impact your future but it really will. 

Discretionary spending will increase over the course of your professional life. Promotions will happen and raises occur. It’s easy for the ego to take over and get cocky about increases in income. I encourage you, rather than spending more, invest more. SAVE more. Be MINDFUL of where your money is going. If you could live a happy life off of $5,000 a month before, you can certainly do that again, even when the raise or yearly bonus is posted! Not falling trap to lifestyle creep is what could set you apart from the rest of the population. In combination with investing, it is what could MAKE YOU A MILLIONAIRE. 

I hope you enjoyed this article. If you did, talk to me. Write me a comment below and let me know your financial goals. How will you prevent lifestyle creep? 

XO,

Nicole

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