Lifestyle creep is the gradual increase of spending on one’s lifestyle, goods and services, often corresponding with an increase in income, but not necessarily. It’s a natural human faulting often referred to as “Keeping up with the Joneses” or “Lifestyle Inflation”.
As we work hard toward the American dream, most of us are watching our peers do the same thing. This can lead to the dangerous habit of “comparison” and this is usually where lifestyle creep becomes a problem.
It’s natural to compare ourselves, in some respects, to others. The behavior of others gives us somewhat of a guideline to follow in life. However, taking our cues from others in the culture really isn’t what should govern our lifestyle or our spending.
So, how does lifestyle creep really work?
Lifestyle creep can happen to anyone at any age. A young newly married couple living in an apartment sees that their friends just purchased their first home. Soon, the couple living in the apartment wonders if it’s time for them to purchase their first home as well, but is that the right decision for them?
Folks who get pay raises are in particular danger of lifestyle creep, and often make purchases without considering the long-term consequences. They run out to buy new vehicles, take vacations or even buy bigger homes rather than take the time to consider how these decisions will affect their future.
Even retirees compare themselves to their peers, questioning whether or not their retirement experience should be more exciting than it currently is.
What all of these examples have in common are a lack of planning and long-term goals.
Is Lifestyle Creep Bad?
Lifestyle creep can be a dangerous trap to fall into, as it can quickly lead to increased expenses and debt.
When people gradually begin to spend more money as their income grows, they may not realize that they are quickly getting into financial trouble.
So wait, am I telling you that you can’t ever enjoy your life with the money you’re earning? Is there something wrong with increasing your lifestyle and social status??
Well, yes and no.
Of course, we all want to progress in life and create a secure home life for our families, and there’s nothing wrong with that.
But consider this, change happens. You will not earn the same amount of income for your entire life.
There will be job losses and layoffs when no income is coming into your household.
You may make a career change and choose less income for more fulfillment.
You or someone in your family could suffer from a serious illness, making it difficult to work.
Further, consider that a woman’s peak earning years are between the ages of 35-54 and men’s are between the ages of 45-64. After that, income begins to taper off.
However, lifestyle creep doesn’t care. Those extra mortgage payments, maxed-out credit cards and lack of savings will have no mercy just because you don’t have the money to keep up with them.
How to Avoid Lifestyle Creep
The very best way to avoid the dangers of lifestyle creep is to set goals and have a long-term plan for your finances.
Sit down and ask yourself (or with your spouse if married) where you want to be in the next 1, 5, 10 and 20 years? Where are you headed?
–What education do you still need to meet your goals? How will you pay for that?
–Will you settle down and purchase a home or is renting better for you right now? Buying a home isn’t for everyone, sometimes it makes more sense to rent.
–Do you want to have children? Will someone leave their job to stay home and raise them?
–Will you pay for private schools or homeschool your children? These choices will cost more, but may be a priority for you.
–How much house will be enough for you? Buying a smaller home means that it costs less to heat and cool and overall maintenance takes less time and money.
–Do you want to travel?
–Do you want to retire early? You’ll need to save more by keeping your lifestyle expenses low.
–Will you fund your children’s college? Four years of college at a state school runs about $102,000 currently, $173,000 for out-of-state schools and over $200,000 for private universities. Helping your children through college will save your kids the pain of paying off student loans well into their careers, setting them back for decades.
–Will you take advantage of your company’s 401K plan? Will you fund an HSA? How else will you save for retirement?
It’s critical to save several hundred dollars a month, at a minimum, to achieve a decent retirement. Remember, you’re fighting the effects of inflation as you age into retirement age, so your dollar will buy less than it does now.
All of these questions are important to consider as you sketch out a plan for your life.
The goal of financial planning is to fund YOUR life, not someone else’s life.
What do you want out of your life, both now and 30 years from now?
Preventing Lifestyle Creep
Here are a few tips to help you avoid lifestyle creep:
Make a Budget and Stick to it
Sit down and make a list of all of your expenses, both fixed and variable. Look for ways to reduce your expenses by eliminating high-price/low-value expenditures like eating out, take-out coffee, alcohol, clothes shopping, cable, magazines, sporting events, movies, etc.
Pay attention to your utilities and reduce them by lowering your energy and water consumption.
Consider the “cash system” to help you tighten your financial belt and create new habits.
Pay off All Debt
Create a plan to accelerate payments on all debts, starting with the highest interest loans first.
As you cut other expenses, put that money towards paying down debt.
Learn to Save and Pay Cash
Need to replace your tires soon? Maybe you need a new water heater? Start saving for them now by putting money aside in “sinking funds”, which is simply cash in envelopes marked for a specific purpose.
Do not give into the temptation to use credit cards for expenses that you should be saving up for.
Live Far Below Your Means
After paying off over $100K of debt nearly 30 years ago, I can assure you that we will never allow ourselves to get into debt again.
How is that done? By living far below our means.
While it isn’t necessary, I still shop at Aldi and hit garage sales/Facebook marketplace whenever I need something. I don’t drive my truck unless it’s absolutely necessary to go out. I will barter at every opportunity and patiently wait until an item goes on sale before I buy it.
The money that I save goes towards paying college tuition for our kids, into retirement savings and our HSA’s. YOU can do this as well!
Save Consistently and Automate
The best way to save money is to automate your savings.
When you get paid, set up your checking account so that money goes into specific accounts so that you never have to worry about it.
See something you want that you didn’t plan for? Give it the “24-hour Rule”.
Go home and wait for at least 24 hours before buying it, assuming you have the cash to do so. I find that 9 times out of 10, I won’t go back to the store. This is because the initial excitement i.e. adrenaline, has decreased and I realize that I don’t need it.
Invest with a Trusted Financial Advisor
As soon as you are earning a steady paycheck, you should find a trusted financial advisor and have a consultation.
A good financial advisor can help you to plan, and fund, what’s important to you, they’re worth their weight in gold!
Don’t let the mindlessness of lifestyle creep steal the comfortable future you could have!