Imagine you get a big raise at work or a new job with better pay. As your income reaches a new higher level, what might your instinct be on how to spend it?
Maybe you want to move into a bigger place or drive a better car. Perhaps your wardrobe needs an upgrade, or you hope to replace some worn-out furniture.
None of these are by any means wrong, and may be necessary; however, they are also examples of lifestyle creep.
As income increases, it’s natural for your spending to increase as well. This is known as lifestyle creep when your expenses continually rise at the same pace as your income. In some ways, this is a necessary part of life. As income increases over time, many other aspects of your life may also be changing, and significant life steps like having kids or moving will require money investments.
The problem occurs when lifestyle creep gets in the way of making wise financial choices and ultimately interferes with your financial health.
The Downside of Lifestyle Creep
If your spending increases in step with your income, or even worse, exceeds it, then it will not be possible to have a balanced financial plan.
An essential piece to financial health is being prepared for the future and any emergency expenses. Having a comfortable amount of savings on hand provides financial insurance against the unexpected. Saving for retirement or a child’s college fund is an investment in long-term financial security.
Bonuses, raises, or higher income from a new job are opportunities to enhance financial wellness if used wisely.
Three Steps to Prevent Lifestyle Creep
1. Have Clear Financial Goals
Whether you work with a financial advisor, take advantage of an online planning tool, or just write down goals for what you want your financial future to look like, be clear on what you want your money to do for you. (1) Know how much you need for the kind of retirement lifestyle you hope to live. Plan for college or to purchase a new home and build the savings to make it possible. Have concrete numbers that you can use as a guide.
Being clear on your long-term goals will help you avoid overspending on big items. Housing and cars are two of the most significant monthly expenses and where lifestyle creep can be especially problematic. Knowing your comfortable savings numbers will motivate you to forgo the large house or luxury car and instead invest in peace of mind.
2. Set a Budget
Using your financial goals as a guide, outline a budget that will allow you to meet your daily expenses and invest in your financial future. You can use an online budgeting tool or just make a list of your income versus your bills and see what you have leftover. If you find your bills are so high that saving to meet your financial goals is difficult, that’s a clue that lifestyle creep may be at work. Use it as an opportunity to reevaluate how you are spending your money.
Setting a budget can be simple, but following it is the challenge. One way to make this easier is to budget money for free spending. The intention of financial goals and budgeting is not to be miserable but smart. Intentionally letting yourself enjoy some luxury will make it all worth it.
3. Write down What You Truly Value in Life
If you make a list of what is important to you, you may notice that not many “things” are on it. For most of us, what matters is relationships and meaningful experiences. Money can play a role by allowing you to give gifts to those you love or travel to a new place, but on a day-to-day basis, investing in these things costs nothing but your time.
If you define what makes you truly rich, it will be easier to let go of spending habits that don’t contribute to your values. (2) It will save you money, but more importantly, it will be a powerful way to deepen your connection to the things that matter.
Flexing Your Self-control Muscles
Many factors influence the natural inclination to let your lifestyle creep upwards as you become more financially stable in life. The marketing from your favorite influencer and the constant exposure to commercials and ads are all designed to pull you towards more lavish spending. It is an ingrained part of our culture.
What you have to ask yourself is, is it worth it? Does it genuinely contribute to your overall health to accumulate more and better things? If you’re living paycheck to paycheck or carrying high balances on credit cards, what impact is that having on your levels of stress and happiness?
It takes wisdom and determination to break free of the cycle and choose financial health over instant gratification. Finding the will to do so benefits you financially and in all other aspects of wellness. It may not come naturally at first, and as with most things, it will take some practice.
The more you practice, the easier it will become. Post your goals where you will see them often to remind you of what you want to achieve. Keep your list of values by your bed so you can reflect on them in the morning or before you go to sleep. Remind yourself of all that makes you genuinely wealthy and take time for gratitude.
Lifestyle creep is not inevitable. If you set yourself up for success and stick to your goals, you can have the lifestyle you want now and in the future. That is the path to lasting financial wellness.
