Lifestyle creep is a sneaky son-of-a-bitch. A silent killer of financial stability.
We have this unfortunate tendency to gradually let our cost of living creep up as our income rises.
It’s the normal progression of life, right? You start working, treat yourself a few things, get a raise, treat yourself to a few more things – the consumer cycle continues on and on until you retire.
But what is following this societal norm doing to your finances?
What would happen if you took a stand and pushed back on lifestyle creep?
Could you live a financially free and stable life?
Would you be better prepared for retirement and the lemons life throws at you?
Let’s take a look.
What Exactly Is Lifestyle Creep
Lifestyle creep [also known as lifestyle inflation] occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities. – Investopedia
When I think about this and look back, I can totally see how this played out in my own life.
For example, I remember moving into my first nice apartment after college. It had air conditioning, underground parking, a dishwasher and a freaking pool! (The complex was also filled with a lot of elderly tenants, so, looking back, I may have mistakenly moved into a retirement community.)
After getting a taste of that sweet sweet life, some things like air conditioning turned into non-negotiables. As I searched for my next apartment, I refused to look for any place that didn’t have central air and likely paid a premium for it.
This is exactly how things that were once luxuries slowly turn into necessities. And care must be taken as it’s the small choices that add up quickly over time and easily turn into a lifestyle of extravagance if left to run wild.
The lifestyle creep shows up in things we don’t think twice about like:
- Going out to eat more frequently or to pricier places
- Hiring services like housekeeping, lawn care service or a pool boy (those old ladies loved watching him work)
- Buying a bigger house or a nicer car than we need
- Purchasing floor seats for a concert or sporting event instead of nosebleed seats
Now I’m not saying we shouldn’t allow our standard of living to increase. No one wants to live life the same way they did when they were 18—living with five roommates eating instant mashed potatoes and ramen noodles for every meal. And I’m definitely not going back to Wisconsin summers without air conditioning.
But what I am saying is that lifestyle creep is a choice. And we can either make that choice carefully with intention or blindly. It’s up to each of us to choose wisely. Because if we don’t, lifestyle inflation can silently and stealthily mess with our financial future.
How Lifestyle Creep Turns Your Dreams Into Nightmares
Allowing your spending to increase at the same rate as your income affects finances several ways.
1. Decreases Financial Stability
The key to financial stability is increasing the gap between your income and your spending.
When every dollar earned is spent, you don’t have the ability to create a gap full of money for emergencies, major car and home maintenance or those damn lemons life throws at us.
As you can probably see, this gap is just like an airbag waiting to protect you when you get rear-ended by life. Life gets tough. And when you create a gap between your income and your expenses, you protect yourself from a financial setback.
So how do you create this gap?
You fight off lifestyle creep. The more you fight off lifestyle creep, the larger you can make the gap between income and spending and the more stable you are financially.
For example, let’s say that life throws one of those damn lemons at you and you end up in a car accident. The car isn’t totaled but will cost several thousand dollars to repair. Since you need your car to get to work, you have no choice but to make the repairs.
But, wait, you don’t have an emergency or car maintenance fund since every dollar earned is spent. Now what? Most likely you’ll turn to your credit card causing you to take on debt. And this is how the ball gets rolling on accumulating debt and increasing financial instability.
2. Increases the Money You Need in Retirement
One of our goals in retirement is to maintain the standard of living we established in the years prior to retirement. We don’t want to go back to living with five roommates and eating ramen in retirement, right? Although I do think it would be fun to shack up with my girlfriends when we are all 80.
Unfortunately, as our lifestyle standards creep up, so does the amount of money we need to save to keep that lifestyle in retirement.
For you non-math majors, sustaining an $80,000 lifestyle for 25 years is going to take a lot more money than a $50,000 lifestyle for the same time frame – to the tune of $750,000!
The more you fight off the lifestyle creep, the less money you grow accustomed to living off of. Hence, the less money you need to save for retirement. Simple!
My Own Story of Financial Creep
Post College Life
Looking back, I think most of my lifestyle creep happened by treating myself to more extravagant things as my income increased for one reason: I deserved it.
Post college, I found myself quickly moving up the ladder in a time sucking, stressful job. It was hard, but I thought that this is what life was all about. For me, success was tied to my job performance.
I was making money and spending it just as soon as it hit my bank account. I bought things like a juicer (I barely used), a new car (before I really needed one) and expensive trips (that drained the savings).
High five to past Mel since she was actually saving for retirement. Deep down, I knew it was the right thing to do. It wasn’t much, and I didn’t really understand it, but I knew my parents had a 401k, so it seemed like and that it was something I should do.
Even with some retirement savings, there was no way in hell I was prepared for life to throw me lemons. My emergency fund was nonexistent and any big purchases were financed. Unbeknownst to me, my financial stability was shaky at best.
Fast Forward a Few Years
I traded my stressful management job with income growth potential for a laid back worker bee position with not a lot of room for growth. And I couldn’t be happier. It’s been a complete game changer in the quality of my life.
Around this same time, I started rethinking my approach to personal finance. I had this crazy idea that by approaching my finances differently and increasing the gap between by savings and spending I could shave off a few years of work by retiring early. And it was actually a lot less painful than I anticipated.
As a bonus, increasing the gap improved my financial stability and allowed me to start leading the life that I wanted, instead of leading a life to just to pay the bills.
So now that we know what lifestyle creep is all about, how do we arm ourselves against it?
For another example, Educator FI has a great post on how he and his wife fought back against lifestyle inflation.
How to Stop Lifestyle Creep In Its Tracks
1. Make a List of Your Goals and How You Envision Your Future
It’s so much easier for your lifestyle to inflate when you don’t have established long term goals.
No plan = mindless spending.
Envision how you want your future to look. Is it a well funded retirement? A trip around the world? The ability to spend more time with your children or grandchildren?
Can you see these dreams coming true with your current spending habits? If not, then changes can be made. The key is to take the time to actively think about it and make a plan.
Budgeting is a great way to establish goals and make your plan. It’s a one stop shop for seeing if your spending aligns with your dreams. But if you aren’t the budgeting type, then simply making a list of financial and lifestyle goals you want to accomplish in your life is a great start.
2. Commit All or a Portion of Raises to Savings
One of the easiest ways to increase the gap between your income and your savings is to immediately move any pay increases into savings. It may not be much and it may be a slow process, but every little bit counts. Your future self will thank you.
3. Resist the Temptation to Double Expenses If You Combine Finances with a Partner
A great advantage of combining finances with a partner is the opportunity to split the cost of major expenses, like a roof over your head. This is a fast and easy way to reduce some personal expenses and increase savings! Boom!
Unfortunately, this opportunity to increase your savings is often lost.
The problem arises when you combine finances and now think you can or should add your mortgage or rent payments together to get a “better” place. Doing this would be like going to the appliance store with your partner and buying two new ovens. Just because there are two of you, and you can afford two ovens, it doesn’t mean you’re going to need two ovens.
What would happen if you instead intentionally took advantage of your dual income and increased your savings while only modestly increasing your housing cost? You’d be giving the bird to that jerk we call lifestyle creep.
4. Be Intentional With Each Non-essential Purchases
Spending money blindly is an open invitation for lifestyle inflation to creep right on in.
To help ward the creep off, take a moment to be mindful and think about whether it’s worth your hard earned dollars before making non-essential purchases or upgrades.
A trick to be mindful is to think about how much your hourly wage is and then figure out how many hours of work it would take to make the purchase. Then ask yourself is this worth X amount of hours worked?
Purchasing with intention is like having your own bouncer who has been instructed to only allow in the things that will truly make you happy.
5. Upgrade slowly
When it comes time to upgrade the material things in your life, do so slowly and with intention. There is no need to upgrade all at once. Maybe that old college couch can last a few more years while you focus on upgrading your bedroom furniture.
Also upgrade the things that are a priority for you and skimp on the things that don’t matter. If spending time outside in your yard is important to you, then adding on a patio may be an amazing upgrade to your home. But if you only ride your bike a few times a year, there is no reason purchase a top of the line model.
6. Save On Your Biggest Expenses: Housing, Transportation, and Food
If you want to really keep lifestyle creep at bay, then focus on where you spend the most. For most of us, a majority of our money is spent on housing, transportation and food. If you keep these costs down, then the occasional splurge won’t rock the boat.
So cook at home more and do your darndest to only buy the house and car you need.
Saving on these three things can make a huge difference in stabilizing your finances.
You Got This!
Lifestyle creep is a silent killer.
It sneaks up on you, limiting your ability to build wealth and prepare for the hiccups in life.
But all it takes is to be aware of how lifestyle creep happens and actively choose how you want your life to inflate.
Lifestyle inflation is inevitable, but it doesn’t have to rob you of your financial stability.
Go now, think about your future, make the necessary changes, and start fighting lifestyle creep.