Treat yourself! You’ve earned it! It’s about time! You’ve heard phrases like this after a pay raise – and they all lead to… lifestyle creep (aka lifestyle inflation.) It’s the sneaky phenomenon that sucks all the joy out of your accomplishments, riddling you with more bills and less savings.
Oh, and if you’re wondering what is lifestyle creep, I’m not talking about that weirdo who randomly shows up when you’re having a good time. (That’s lifestyle creep-o.) I’m talking about something different:
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What is Lifestyle Creep?
Lifestyle creep is also known as lifestyle inflation or income creep. It’s the gradual increase in your spending where expenses that were once luxuries become seen as necessities.
Lifestyle inflation usually comes with income increases (which is why lifestyle creep is also known as income creep) making these spending increases feel justified.
Here’s an example of lifestyle creep
The tricky thing about this phenomenon is that it often feels justified due to a pay raise and something we’re buying anyway.
Let’s say you moved to a new city for a job and rented a crappy basement apartment that always smells like soup and has tap-dancing neighbors upstairs. After getting established at your job, it makes sense to improve your living situation.
- You see some decent places you could buy or rent, but for not that much more you decide to buy a bigger house just out of town.
- When you get your bonus, you decide to upgrade your car – since you’re driving so much, you might as well be comfortable. You also hire a landscaper, because a nice house like yours shouldn’t be neglected and you have no time.
- After getting a promotion, you decide to take a deluxe cruise vacation… I mean you’ve been working so hard, you deserve it. (Never mind that you were happy with a backpacking trip to Costa Rica just two years ago.) This is nice and you met some friends on the cruise so you might need to do this every year.
- By the way, your new friends convinced you to join a golf club – it might help you on your way up to become an executive, so it’s a very justified expense. Plus, you need all the golfing gear, and you might as well go top of the line – you don’t want to look cheap.
- Oh, and now that you’re an executive… You should probably buy a nicer house and a nicer car… and a new wardrobe.
Your income has more than tripled, but you still have no savings and huge bills to pay,
You see how easy it is to justify lifestyle inflation when it comes with pay bumps and mandatory purchases related to housing and work?
And you might be asking – so what, am I supposed to just keep living in that smelly, noisy basement apartment even though I can afford a mansion? No. You need to find a middle ground. We’ll get to that soon.
Warning signs of lifestyle creep
You’re stressed about your bills
If you have an objectively decent income but you’re worried about making ends meet – you’ve definitely bitten off more than you can chew. If your bills like mortgage, car, property taxes, or, dare I even say it – credit card debt – are stressing you out more than tap-dancing neighbors, you’re in a trap lifestyle and you need to get out!
You still have barely any savings or investments
Your current income is for right now AND the future. If you don’t have enough money to invest for the future, you’re spending too much right now.
This is the easiest telltale sign of lifestyle creep and the one with the worst consequences.
You’re justifying more and more purchases as necessities
Remember when you went out for dinner just for special occasions? When you were proud to drive your own car… that was older than your parents? Or when you were perfectly satisfied with a flip phone? (Maybe I’m dating myself here, but you get the point.)
If now, getting a meal out is a regular necessity, you wouldn’t even consider getting into a car that’s not the highest trim, and you joke about your “old” phone if it came out over a year ago – you might need to get back at your old ways.
Common lifestyle traps
Yes, you need a place to live. But ask yourself if you’re justifying a place you can barely keep up with just because technically you can afford it.
It’s not just your mortgage that will go up if you decide to upgrade your home. Property taxes, utilities, and other bills will leave you with nothing to set aside.
To avoid this lifestyle creep trap read: Are You House Poor and Don’t Know It? (And How to Avoid This Trap.)
It’s interesting to see when people “have made it” they immediately buy a luxury car and basically dump their raise into feeling cool.
You want to show how much money you can waste?
Resist the urge to “upgrade” your car. Invest that money instead.
To avoid this lifestyle creep trap read: Longest Lasting Cars: A One-And-Done Buying Guide
There will always be an opportunity to go out, and you might find yourself doing it more and more once your income goes up. Avoid this lifestyle creep trap and stay in instead.
To avoid this lifestyle creep trap read: How to save money with friends: How to fight off FOMO
I kind of get how the whole dress for the job you want sentiment can go hand-in-hand with income inflation. (Although, you should really just aspire to be an early retiree, and dress like a bum like me! Just kidding.)
But in reality, you really don’t need to inflate your spending all that much.
To avoid this lifestyle creep trap read: Frugal Male Fashion – 11 Ways to Look Good and Spend Less on Clothing (With Examples)
You know me – save the most controversial topic for last!
There are obvious inevitable expenses that come with having kids, and for some people, these expenses are higher than others, and I’m sure they always feel justifiable.
So in this hairy case, I WON’T tell you to drop your kids’ hockey or tutoring to save some money, but I WILL tell you to pay attention to whether you’ve increased your spending when you really didn’t need to.
How to prevent lifestyle creep
The most important thing in avoiding lifestyle creep is knowing about its sneaky tendencies and identifying where it’s most likely to hit you.
Once you’re on the lookout, you’ve almost won the battle. Here’s how to take it all the way and avoid lifestyle creep.
1 – Be motivated by a bigger goal
Did you know that I don’t believe in budgets?
I have a bigger goal, and I’m super motivated by it.
My bigger goal (to retire early – which I’ve done, and travel with my family) is what gets me to say nah to needless purchases, avoid lifestyle creep, and save my money.
Money motivation & being the LeBron of FIRE
10 Short Term Financial Goals to Help You Inch your Way to Big Wins
Intermediate Goals – Why They’re The Ultimate Bridge To Success (With Examples)
2 – Develop stronger habits
Money habits are a big topic but just start by asking yourself better questions. Questions like:
- Is this necessary or just justifiable? Or
- How does this purchase compare to my bigger goals?
Train yourself to ask these before any purchase (from burritos to cars) and you’ll be surprised by how much money you’ll have left over.
3 – Practice Stealth Wealth
I’m literally famous for my Stealth Wealth. When you don’t advertise that you can afford a bigger lifestyle, it’s much easier to avoid lifestyle inflation. It’s kind of a self-fulfilling prophecy.