What Is Lifestyle Creep And How Can You Avoid It?

What Is Lifestyle Creep?

Lifestyle creep is when your spending increases with your income to the point where it hinders your financial goals. While more money can help to increase your levels of happiness – think going on vacations, a nice apartment or being able to replace your decades-old car – at some point, lifestyle creep means you’re only looking toward your short-term needs and not seeing whether you’re able to meet long-term ones.

Examples Of Lifestyle Creep

Lifestyle creep isn’t necessarily bad, and it can be expected if your income goes up. There’s nothing wrong with wanting to purchase better quality food or the occasional luxury item. But if it means you’re not able to meet your financial needs, then it becomes a problem.

Here are some examples of lifestyle creep that could have a negative effect on your finances:

• Overspending: Spending more than what you can reasonably afford, or overspending, on nonessential items like dining and clothing is a major indicator of lifestyle creep.
• Living above your means: Living above your means is similar to overspending, except it means you end up spending more than you make. If you find yourself still struggling with bills or wondering why your savings account is lower than you expect, it could be a sign you’re facing lifestyle creep.
• Not meeting your savings goals: You may have savings goals like having enough in your emergency fund or having money for the holiday season. Lifestyle creep can happen when you’re really struggling to put money toward these goals.
• Lack of financial awareness: Not paying attention to your finances like your salary and spending can be a clear sign of lifestyle creep because you have no idea what is going in and out of your accounts.

How To Avoid Lifestyle Creep: 5 Helpful Tips

It’s possible to avoid lifestyle creep. Consider these five suggestions to help you get on track.

1. Create A Budget

Creating a budget can help avoid lifestyle creep because having a plan on where your money goes will help you track it. Doing so also helps you see where your higher salary can go, whether it’s toward a savings goal, increasing some of your monthly spending or retirement.

You can start creating a budget by tracking what you’re currently spending and comparing it to your income and goals. That way, if you need to adjust your spending, you can more easily spot where you need to make changes.

A budget is an ever-changing plan. It’s important to review it regularly and make changes to ensure you’re still meeting your financial goals. 

2. Start Saving Money

Making it a point to save money toward your short- and long-term goals can help you to stop living beyond your means. Even if your spending does increase, you still have a plan to reach your goals. Once you look at your budget and how much you need to save, you can make it easier to save money by setting up automatic transfers so you know how much is going toward your savings each month (or however often you’ve set up transfers).

There are other ways to save money, such as:

• Canceling unused subscriptions
• Planning meals so you’re not spending more than you need to at the grocery store
• Negotiating down bills like car insurance or internet
• Refinancing loans if you know you can save on interest

3. Set Up An Emergency Fund

An emergency fund is money you set aside in case of the unexpected, like a sudden medical expense or needing to repair your home. It’s not for expenses you anticipate, like your semiannual home insurance payment. Instead, an emergency fund can be used instead of taking on additional debt during an unexpected situation.

Since this money is set aside for emergencies, consider opening a separate account. Using a high-yield savings account can help you earn more in interest so the money isn’t just sitting there.

4. Prioritize Your Future Self

Thinking about your future self can help you define a clear goal so you’re not as tempted to spend more money now. Consider goals or needs like buying a new home, having enough money for retirement or achieving financial stability. That’s not to say you can’t spend money now. Rather, thinking of your future self helps you balance between your needs today and in the future.

5. Pay Down Debt

Taking your increased income to pay down debt will help free up additional funds you can use toward other goals or help balance out your changes in spending.

Some ways you can pay down loans:

• Consolidate debt: Taking out a debt consolidation loan allows you to simplify your payments by rolling existing loans into one new one. It can also help you save money if you qualify for a lower interest rate. Shopping around multiple lenders can help you find a loan that best fits your needs.
• Pay off highest debt first: If you have multiple loans, prioritizing paying the one with the highest interest rate can help you save money overall. You can do that by making the minimum payment for all your loans and putting a little extra toward the one with the highest interest. Once that’s paid off, you can focus on the next highest one and keep going until all loans are paid off. Or, you can consider focusing on the debt with the lowest balance and pay it off first if that gives you more motivation to stay on track.
• Spend less: Temporarily lowering your spending means you can put the savings toward debt. You may not want to cut back on all your fun spending, because you could end up rebelling and spend more again. Doing so defeats the purpose of trying to pay off debt faster.

The Bottom Line: Lifestyle Creep Can Be Avoided

Lifestyle creep, or when you receive an increase in pay while also increasing the amount of money you spend, is fine as long as it doesn’t take away from your financial goals. It’s possible to balance spending for today and setting aside money for tomorrow. Being mindful about your spending, setting up a realistic budget and thinking about your future self can go a long way to ensure your money is being put to good use.

Tracking your spending and making sure you’re sticking to a budget to avoid lifestyle creep doesn’t have to be hard. Tools like the Rocket Money^℠ app help you see all your transactions in one place so you can see where your money is coming and going.