Ideally, you work in a career where your income increases over time. It might be slow and gradual, or it could be a rapid rise, but for most people, income does scale upward. And while that’s exciting, you have to be careful to avoid scaling your lifestyle in lockstep. In other words, do your best to avoid lifestyle creep.
What is Lifestyle Creep?
Lifestyle creep is the name given to a common phenomenon that occurs when a person’s income increases. As income goes up, discretionary income tends to also increase, as things that were previously considered to be luxuries now become necessities. In many cases, discretionary expenditures rise faster than the increase in income.
“A hallmark of lifestyle creep is a change in thinking and behavior that sees spending on nonessential items as a right rather than a choice,” personal finance expert Julia Kagan writes. “This can be seen in the spending decision attitude of ‘you deserve it,’ rather than thinking of the opportunities that saving money would provide.”
The danger of lifestyle creep is that it can quickly get out of hand. While it’s totally normal to buy nicer things as your income increases, it’s important to avoid putting yourself in a situation where you’d no longer be able to afford your current lifestyle if your income goes down (either via a job loss, retirement, or dip in the market).
How to Avoid Lifestyle Creep
Every financial situation is unique, but here are some of the best ways to put yourself in a position where the threat or allure of lifestyle creep does not impact you:
Set Clear Financial Goals.
Start by setting clear, concrete financial goals. Are you saving for a new home? Planning for retirement? Building an emergency fund? Clear goals help you stay focused and motivate you to manage your finances better. When you know what you’re saving for, it’s easier to resist the urge to splurge on non-essentials.
Stick to a Budget.
As your income grows, it might be tempting to stop budgeting, but this is the time when it’s most critical to stick to a budget. Review your current expenses and adjust your budget to reflect your new income. Allocate money for savings and investments before you start spending on luxuries. Plenty of apps available online can help you track your spending and keep you on track.
Prioritize Saving and Investing.
One of the best ways to combat lifestyle creep is to prioritize saving and investing. When you receive your income, set aside a portion for your savings. Think about investing in stocks, bonds, or real estate – whatever fits your long-term financial strategy. And when it comes to managing your investments, be smart and adopt a long-term perspective. For example, if you’re investing in real estate, hire a property manager to protect your investment and keep your cash flow positive.
Be Mindful of Incremental Spending.
Watch out for small, incremental increases in your spending. Maybe you start buying more expensive coffee, eating out more often, or upgrading your gadgets more frequently. These expenses can add up quickly and eat into your income without you realizing it. Always ask yourself if these upgrades are really improving your quality of life or if they’re just unnecessary luxuries.
Maintain Your Old Lifestyle for a While.
Just because you can afford to live a more lavish lifestyle doesn’t mean you should. Try maintaining your old lifestyle for a while, even after your income increases. This can give you a buffer period to adjust financially and mentally to your new income level. Use this time to boost your savings and pay down any debts.
Invest in Experiences, Not Things.
Research shows that experiences bring more happiness than material goods. Instead of buying a new watch or a fancy car, consider spending on experiences like travel, learning new skills, or taking up new hobbies. These experiences can enrich your life, improve your skills, and create lasting memories—all of which are more valuable than material possessions.
Keep Quality Over Quantity.
When you do choose to spend more, focus on quality over quantity. For example, buying a high-quality item that will last longer is often smarter than purchasing several cheaper, lower-quality items. This approach can save you money in the long run, leading to a less cluttered, more satisfying lifestyle.
Adopting a Future-Facing Mentality
The best way to avoid lifestyle creep is to adopt a future-facing mentality, thinking about your finances in 10, 20, and 30 years. When you set your budget, make big purchases, and identify investment opportunities, always consider how they will impact you down the road. If you make all of your financial decisions through this lens, you’ll avoid lifestyle creep and build more wealth and security over time.
