How To Avoid The Temptation of Lifestyle Creep
It seems almost as if there's an expectation that as you make more money, you also need to spend more.
If you’ve ever gotten a raise or bonus and immediately purchased something to upgrade your life, that’s lifestyle creep. While there’s not necessarily anything wrong with it, it’s important to be aware of what it is and what you can do to suppress it.
Truth is, most people let lifestyle creep take over their lives. You get a raise, maybe buy a new car or move into a nicer apartment, and life seems great. But then you get a few more raises and decide to buy a boat and a lakehouse.
When does it stop?
It usually doesn’t.
Don’t get me wrong, I’m definitely guilty of this myself. When we got our first $1,200 stimulus check, I wanted to spend the entire thing on a pair of Travis Scott SB Low’s.
For absolutely no reason. I just wanted them. And I definitely would've regretted it so I’m glad I didn’t buy them.
(I explain the strategy I used to resist purchasing these later in the post)
So what can you do to avoid the inevitable lifestyle creep?
Avoiding lifestyle creep doesn’t mean that you can’t spend money on yourself. In fact, you should spend money on yourself - but consciously.
Rather than going on a shopping spree and buying everything in sight, buy something you’ve been wanting for a while.
Or spend that money on an experience like a road trip or a weekend getaway.
Rewarding yourself is a necessary part of enjoying your money.
Actionable tip: Set a certain percentage that you’ll spend on yourself for each raise, bonus, gift, etc. For example - if you received a $1,000 bonus, 25% of that could be spent however you’d like.
Invest a portion of your raise
This is one of the best ways to counteract lifestyle creep. Typically, most companies give their employees an annual raise. This can be anywhere from a few hundred dollars up to thousands of dollars.
To keep it simple for this example, we’ll say you received a $1,000 raise. Over the course of a year that’s $83/month. If you were to invest or save 75% of the raise (~$750) and spend the remaining 25% on yourself, you can successfully position yourself to not fall victim to lifestyle creep.
The reason this strategy is successful is because you’re saving more than you’re spending so it’s harder for those expenses to slowly creep up on you.
Actionable tip: Each time you get a raise, invest or save a certain percentage of it.
Similar to the first point, spending consciously helps align your spending with your values.
Let me tell you the old story of the boiling frog.
The premise is fairly simple: if a frog jumps into a boiling pot, it’ll jump right back out because it's too hot. But if he jumps into a lukewarm pot of water and you slowly increase the temperature, he’ll sit there and happily let himself get boiled over time.
This is exactly what happens when lifestyle inflation takes over your life.
You probably won’t start out with buying a brand new car or home. It may start with buying a new iPad or a new pair of shoes you’ve been wanting. But over time, you’ve upgraded every aspect of your life and each time you get a raise, you can’t get ahead financially because expenses keep piling up.
Actionable tip: Take some time to think about things you enjoy spending money on and what brings you value. If there’s something you want to buy, wait a week. Then see if you still want to buy it. I do this all the time and have saved thousands of dollars by not impulse spending.
Here are a few things I didn't end up purchasing because I waited a week:
- Kayak ($300)
- Travis Scott Nike Dunk's ($1500. Stupid, I know.)
- iPad ($299)
- Rally Rd hoodie ($100)
- Nike Blazers ($110)
Create a financial plan
Do you ever feel like you’re not confident in your financial future?
Like no matter what you do, you can’t seem to get ahead?
It may be time to sit down and design a financial plan. It’s a common misconception that a financial plan lays out every single decision you’ll make with your money over the course of your life.
Thankfully this isn’t true.
Rather a financial plan helps guide your decisions and ensures you’re heading in the right direction.
The reason this works well is because it makes you think about future goals and what you want to accomplish. Most people never take the time to do this so you're putting yourself ahead of the curve simply by making your money a priority.
After laying out your financial goals, it's easier to make decisions that align with them.
For example, if you knew you wanted to buy a home that required a $40,000 down payment in 5 years - you would know that you'd need to save about $670/month to reach that goal. If you receive a bonus or raise, that extra money can be used to go towards your goals instead of careless spending.
Actionable tip: Lay out a basic overview of your short term financial future. List out 3 things you'd like to accomplish financially over the next 5 years and determine how much needs to be saved or what needs to be done to reach them.
The Bottom Line
I do want to clarify that lifestyle creep isn’t always a bad thing.
What’s the point of making money if you can’t enjoy it, right?
But there’s a fine line between irresponsible spending and consciously improving your quality of life. Lifestyle creep becomes a problem when you find yourself living paycheck to paycheck, even after receiving multiple increases in income.
If you’re hitting your savings goals and find yourself saving consistently, it’s okay to spend money on yourself. This is why it’s important to have an overall understanding of your financial situation so you can make the best decisions for yourself today, as well as tomorrow.