What is Lifestyle Creep?
Ali is 30 years old and has a great job that pays $75,000 per year. By all measures, Ali is crushing it and lives a fun lifestyle. Ali takes expensive vacations, eats at the best restaurants, and drives a brand new car.
It hasn’t always been like this for Ali, though. Ali struggled just after college, working an entry-level job that paid half the going rate. Over time, Ali made more and more money… and the bills kept racking up.
Ali is experiencing lifestyle creep and needs to get a hold of the situation before it’s too late.
Keep reading to learn why lifestyle creep is such a problem for young consumers.
Lifestyle Creep: An Overview
Simply put, lifestyle creep—or lifestyle inflation—occurs when someone’s standard of living increases as their income rises.
Most people enter the workforce on a limited salary, without much money to spend. As they advance and their income increases, things that were once acceptable are no longer valued.
Someone may start with an economy car with no bells and whistles. Then they’ll hit a payday, earn a bunch of extra cash, and blow it all on a new car that costs half their annual salary.
Why Lifestyle Creep is a Problem
Here are some of the reasons lifestyle creep is a problem over the long term.
Less retirement savings
When you spend too much each month, it leaves less to put away in tax-friendly retirement accounts. Shockingly, the long-term cost could be in the seven figures. Also, spending more today (versus saving and investing) means you may have to work more years before retirement.
Overspending can quickly lead to debt. You could wind up with a massive credit card bill and a car loan you’ll be paying off for years to come. The only winner in that scenario is the bank or lender charging you interest fees. Don’t let the bank win.
Delayed financial freedom
If you’re looking to build a strong financial future, you have to control lifestyle creep. Without delaying gratification and a high savings rate, it’s impossible to reach financial independence.
Is Lifestyle Creep Always Bad?
Lifestyle creep usually has negative connotations, but it’s not always a bad thing. After all, there’s little point in working harder and pushing yourself if you can’t enjoy what you bring in.
That said, there’s a big difference between splurging unnecessarily and spending a little money to improve your situation.
Examples of “Good” Lifestyle Creep
Here are some cases where a little bit of lifestyle inflation is okay.
Attracting a partner
When it comes to dating and attracting a life partner, it pays to be generous. That’s not to suggest you should make it rain every weekend, but being excessively frugal can work against you. It’s hard to have a social life if you never go out, after all!
That said, plenty of people find frugality attractive. It demonstrates strong discipline and financial management. With money and relationships, it’s all about balance.
Starting a family
Lifestyle inflation can reach new levels when kids get involved.
All of a sudden, you need a bigger home! A safer car! Or, you feel pressured to spend more money on a stroller than you did on your honeymoon.
You may also feel the need to start buying expensive clothes and toys for your children. All of this can quickly add up to a huge amount of money.
Wanting a nicer standard of living
As you get older, your tastes naturally change. The whiskey bottle lamp and Parental Advisory poster you loved in your early 20s just… aren’t cool anymore. You also might want to start dressing more professionally and eating healthier.
There’s nothing wrong with wanting a lifestyle upgrade so long as you can afford it. This is a part of everyone’s financial journey. And if you find that you can’t afford the things you want, then it’s time to ramp up your earning potential.
Examples of “Bad” Lifestyle Creep
Here are some negative examples of lifestyle creep. Avoid them at all costs.
Keeping up with the Joneses
For some, seeing friends and neighbors doing well can trigger a strong emotional response, causing them to go on a spending spree. The classic example: a neighbor stopping by to show off a new lawnmower, causing you to go out and buy a nicer one. It’s just not a healthy way to go about life, mentally or financially.
Overspending because you can
Another damaging habit is buying something you want instead of something you need. Maybe you see a commercial for the new PS5 and want to upgrade. Or, you hear of an alluring vacation spot and picture yourself there.
Spending just because you can is an easy way to drain your savings and wind up in debt. It’s critical to maintain control and be selective about purchases.
Letting daily expenses accumulate
Oftentimes, consumers don’t realize lifestyle creep is occurring. Small expenses can slowly turn into larger recurring payments.
When you’re broke, going to the grocery store takes real financial planning… and you make small sacrifices (like buying store brands) to stay under budget.
When you have money in your pocket, going to the grocery store is a very different experience. All of a sudden, you can make it rain all over the produce section, spending a small fortune on organic, GMO-free pomegranates.
Over time, negligent spending can take its toll, leaving you with far less left over at the end of the month (and at retirement).
Ways to Manage Lifestyle Creep
Lifestyle creep can be a big problem if unchecked. Let’s cover how to avoid it.
Stick to a budget
The best thing you can do is stick to a budget. Figure out your monthly cash flow and control where money is distributed on a recurring basis.
It may be as simple as limiting the number of times you eat out per month or cutting your streaming services down to only one or two. Figure out a spending limit… and stick to it.
Appreciate what you have
Try to ditch the mentality that you need to keep spending on new things. Learn to appreciate what you have instead of constantly buying.
You probably don’t have to buy new clothes every season or a new vehicle every 75,000 miles. Get more use out of what you already own, and you’ll prevent lifestyle creep from sneaking in.
Create a buffer
When you feel the urge to buy something worth more than $50, take a step back and think about it before putting money down. Make some extra price comparisons online and reflect on whether you really need the item in question.
Buy quality upfront
A common symptom of lifestyle creep is feeling the need to always buy new things. Yet, if you buy one quality item upfront, you won’t need to replace it with anything else.
Maybe you buy an appliance or computer guaranteed to last longer and be more effective. By investing a little more in a high-quality, well-rated product, you can eliminate the need to replace it for the foreseeable future. As a result, you’ll have more money in your bank account you can use to achieve your long-term financial goals.
Frequently Asked Questions
How much should I have in my savings account?
It depends on what type of savings account you’re building. If you’re growing an emergency savings account, you should aim to have at least six months’ worth of expenses socked away. If you’re building a checking account buffer to shield against potential overdraft fees, then you may only need around $2,000.
The less disposable income you spend on frivolous purchases, the more you’ll have left over to put into savings.
How can I keep up with the cost of living?
Life is expensive. Car payments, housing expenses, food costs… it adds up. Yet, there are things you can do to make things more manageable.
First and foremost, you have to limit spending on unnecessary items so you have money to put towards unavoidable expenses when required.
You also have to be smart about where you put money to protect your finances and grow your savings and investments. Some options we recommend include high-yield savings accounts (HYSAs) and online brokerage accounts.
Do I need a financial planner?
Most people don’t need a professional financial advisor. There’s plenty you can do on your own to improve your financial situation. All it takes is a bit of research and dedication. If you’ve been an avid reader of this blog over the years, you’re already several steps ahead of the game.
It also helps to do your own budgeting, which only you can control. By having a firm understanding of your monthly cash flow and recurring expenses, you can limit unnecessary spending. Any leftover cash should then go into your savings and investment accounts. It’s not rocket science.
If you simply don’t have enough cash at the end of the month, consider picking up a side hustle, negotiating a raise, or beefing up your LinkedIn profile to land a better job. The more money you have coming in, the easier everything becomes.
What is a minimalist lifestyle?
Minimalist living involves reducing spending to reach your investing and savings goals. You can still spend money while living a minimalist lifestyle, but it’s all about avoiding wasteful purchases.
Following a minimalist lifestyle with smart spending habits can give you more money to put towards retirement goals, reduce credit card debt, and leave you with extra money in your emergency fund.
The Bottom Line
Avoiding lifestyle creep is one of the best personal finance decisions you can make. If you want to reach your long-term financial goals and retire eventually, then you need to get a hold of your spending.
Take a look at your financial situation and identify areas of wasteful spending. Maybe you don’t need to buy that new car or go out to dinner several nights each week. And some basic budgeting can go a long way. Give it a shot!