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What Is Lifestyle Creep and How Can I Avoid It?

How can I avoid lifestyle creep?

Finally, you got a raise, paid-off a long-standing debt, or maybe your adult child got a job and moved out. Now that you have more expendable cash, you need to understand lifestyle creep.

What is lifestyle creep?

Lifestyle creep, or lifestyle inflation, happens when your income increases, but your spending increases at a greater rate. put it best — it’s when your “former luxuries become new necessities.”
Waiting out the pandemic has been rough, and now that people are getting vaccinated and venues are re-opening safely, we’re all itching to get out and have a little fun — and we should. But this is where lifestyle creep can wriggle in.

Know the warning signs

If you hear yourself saying “I deserve it,” beware. Try saying these three words instead, “Don’t go bananas.” If your credit card bills are larger, and your saving and checking accounts are smaller, the creep has likely started.
Remember, a raise — or any other newly found source of income — is finite and won’t fund endless spending. More income should not create more debt. While your raise may make a big difference, it still may not enable you to keep up with the Joneses. It may cover the cost of a new car, but it may not be enough to buy a new luxury car.
Consider this. Your earnings could increase, but you could actually have less money to spend, if your increase is outpaced by the typical 2.5% annual rate of inflation. Or say you get a $2,000 raise but your landlord increases rent by $25 per month. Your $2,000 raise is now a $1,700 raise. Before you blame your landlord, expect streaming services, phone services, groceries, insurance costs, etc. to increase, too. Sometimes it seems everything goes up except your paycheck. However, there are ways to manage the creep before it takes over.

How to avoid lifestyle creep

  • Spend mindfully. Be critical of what a raise might cover. Like the new car example above, an increase may cover takeout twice a week, but it may not cover takeout twice a week from an expensive restaurant. During this pandemic, many of us were forced to adjust to reduced incomes. Perhaps you gave up your daily drive-thru coffee and no longer miss it. Perhaps you got used to cooking at home and are happy getting take-out only once a week. Ask yourself, “Is it worth going back to those old spending habits when I increase my income, or can I continue to save that money instead?”
  • Consider keeping your new earnings a secret — except from your partner, of course. This way, you won’t be expected to treat everyone to the next bar tab and your brother-in-law won’t be asking you to spot him a couple hundred this month.
  • Delay new purchases. Don’t spend more until you have more cash to spend. “Cash” is the key word here. Wait until you can pay cash for a new couch or other purchases. Otherwise, you’ll have to add furniture payments to your monthly budget and find yourself carrying additional debt.  If you like to shop online, put items in your cart and move them to a saved list and wait a week. 
  • Learn to love saving. A great way to save and spend that extra money is to pay down a debt. Pretend you didn’t get a raise and put the extra money towards paying off a credit card debt, car payment, student loan, medical bill, or even your mortgage. Your future self will thank you! Paying an extra $50 each month on those items will really make a difference. Eliminating a major monthly budget item will buy some financial freedom and a lot of peace of mind. Remember, paying off your balance is like giving yourself a raise, so watch for the warning signs. You want your debt balance — not your spending balance — to be zero.

Bottom line

Enjoy your new earnings and do treat yourself, responsibly. For some of us, retail therapy is very real. Just be sure to increase your saving first, then see what you can afford with your cash. As we get back out there and work picks up again, make sure your fun recovery doesn’t outpace your funds recovery.
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