Lifestyle creep refers to the situation where someone gradually increases their spending on unnecessary items as their income and wealth increases. Now, your higher standard of living becomes the norm and feels like a necessity.
Whether you realize it or not, at some point in your life you might be guilty of a concept called lifestyle creep. It’s an entirely common financial trap that can sneak up without you even noticing. Typically this will start to happen as you grow in your professional career and start earning more money.
While avoiding this lifestyle and reversing the issues is possible, it’s not going to be easy for everyone. It depends on how deep your spending habits go, but also how much work you are willing to put in to correct your financial path. Here are a few tips to help you either avoid this situation or reverse it if you realize you may be guilty of “the creep.”
1. Make smarter financial spending choices
You don’t have to eliminate all spending in your life and just hoard your money. It all comes down to prioritizing and placing some control on your purchasing decisions. The concept is really identifying your needs vs. wants. You must understand what is important to you and realize that you can’t always have it all, otherwise that’s when financial trouble can sneak in.
2. Practice paying yourself first
By paying yourself first, you are putting money towards retirement or savings before touching that money for anything else. At the start, you should consider automating this process so you don’t even think about it.
Now you have money going to the right places first, then your bills, and whatever is leftover can be your “spending” money. This helps you set a limit for yourself.
3. Create a spreadsheet of your expenses
If you are deep in this financial lifestyle, it will be good to lay out your expenses in a spreadsheet. As well as all your random spending and payments. You may think you know off the top of your head, but more than likely your numbers are way off or you are leaving items out.
Seeing this all together and the totals can be a really eye-opening experience. It can help you catch where you overspend, what you need to cutback, and keep on a much better track with your money. This can add some extra accountability to your finances.
4. Write down your financial goals
Besides making smarter choices and looking at expenses, what are your financial goals in life? Creating and writing these down can help you establish a plan for your money and be more motivated to reach them. That way, you stay focused on the goals, instead of spending frivolously.
5. Keep yourself on fixed expenses
What happens with that salary bump is we quickly think of things we can afford to do and spend on. A lot of times that is exciting to think about! I know with two different wage jumps I felt that internally myself.
The key is to stay level headed and put a plan in place for the new salary. Certainly okay to add a bit more to your spending fund, but your best option is to bank or invest the majority of that increase (or pay extra on previous debt if you have any).
6. Material possessions do not define you
Looking at social media and keeping up with friends, family, or neighbors is a good way to end up in lifestyle creep. That’s great others are doing this or buying that, but remember the majority are upgrading just to keep up appearances.
You don’t know what goes behind the scenes financially, so while follow suit and end up in the same financial trap? Focus on you and don’t let others worry you or define you by your lifestyle or what you have. Lifestyle creep what even be a concern and you’ll be much happier.
7. Focus on Maximizing Your Retirement Accounts
Thinking about investing for your future and retirement might not be thrilling, but it’s essential. Often as a society, we aren’t even close to investing enough for our golden years. For example, the 401k account contribution limits in 2020 and 2021 is $19,500 and IRA’s are $6,500. If you aren’t maximizing those accounts, that should be a top priority.
By prioritizing investing first, having extra leftover for frivolous spending becomes more of an afterthought. But this can help you avoid lifestyle creep when you have different financial goals to focus on.