Tips To Avoid Lifestyle Creep

A boost in your financial status will almost certainly increase your spending. You feel comfortable splurging on the new pair of shoes or eating out in the fancier restaurant. However, if you are not careful with how you manage your spending, you are likely to end up in more serious debt than you would like. Financial troubles can creep into your life without warning if you are not careful about the lifestyle creep.

Topics Covered
What is lifestyle creep?
Common signs of lifestyle creep
How to fight lifestyle creep?
How can CreditU Help?
Key Insights

What Is Lifestyle Creep?

Lifestyle creep can be described as the inclination to spend more when you earn more. While it’s good to treat ourselves, too much of a good thing can be bad. Your living standards would gradually inflate and soon outrun the growth of your income. If you don’t keep your spending in check, you could end up in dire straits despite the higher income! This can have a serious impact on your financial health and your ability to achieve your financial goals.

In your financial journey, goals such as emergency savings, retirement planning or saving for a larger goal such as saving for a home should always be prioritized. As lifestyle creep kicks in these needs may drop down to the bottom of your list and take precedence over your financial security. Even when you have a substantial income you still might end up living paycheck to paycheck given the buildup of consumer debt.

Some examples of lifestyle creep include:

Higher-end Vehicles: You trade in your perfectly functional car, not out of necessity, but to acquire a newer, luxurious model with higher maintenance and insurance costs.

Frequent Expensive Dining: Instead of occasional nights out, dining in upscale restaurants becomes a regular event, significantly increasing your food budget.

Designer Clothing: Your wardrobe shifts from practical, reasonably priced items to high-end designer labels, and shopping becomes more about brand names rather than necessity.

Costly Vacations: Instead of modest getaways or budget-friendly trips, you exclusively opt for international, luxury vacations, often traveled in premium class.

Subscription Services: You start accumulating more subscriptions than you can use, from multiple streaming platforms to high-tier gym memberships, and perhaps a series of monthly boxes (beauty, food, books, etc.).

Socializing and Entertainment: Frequent attendance at high-ticket events, like concerts, sports games, exclusive clubs, or social gatherings where you tend to spend freely on food, drinks, and experiences.

All these examples show how easy it is to start spending a bit more without even noticing, especially when you’ve got some extra cash coming in. That money could help you reach some real big dreams, like growing your savings, investing, or even planning for retirement. The trick is to spot these sneaky spending habits early on. That way, you can keep your money game strong and avoid falling into the lifestyle creep trap.

Common Signs of Lifestyle Creep

Lifestyle creep often goes unnoticed. It usually starts with justifiable indulgences and quickly becomes a way of life rather than an occasional occurrence. This way of behavior and thinking changes can have serious implications to your financial behavior. So, it is always a good idea to spot the warning signs of lifestyle creep.

Increase in credit card usage:

If you find yourself increasingly dependent on credit cards for everyday purchases, it’s a sign that your expenditure is surpassing your cash flow. This behavior is a clear path to accruing more debt that you like and a clear path to mountains of credit card debt.
Neglecting Savings and Investments: Are you consistently bypassing your savings and investment plans? Do you constantly have to pull out money from your savings to cover your expenses? If your initial financial goals are taking a back seat, and your savings account growth is stagnant, lifestyle creep could be the culprit.

The Urge for High-End Purchases:

Lifestyle creep is presently vastly influenced by social media use. The perfect coverage high-end foundation to the upscale hip restaurant in town is urging you to spend that extra cash to indulge. This is a clear indication of lifestyle creep. The need to maintain a social image can increase spending substantially and can severely impact financial health.

Increased Income, Same Financial stress:

A significant warning sign is feeling the money stress or living paycheck to paycheck despite an increase in your income. If more money doesn’t ease financial stress, it’s likely that escalating expenses, rather than insufficient income, are to blame.

Catching these money habits early is super important. It’s like spotting a tiny leak in a pipe before your whole kitchen ends up underwater. Nailing lifestyle creep before it takes hold can stop a whole mess of money troubles from coming at you, saving your long-term plans from taking a hit. Keep a sharp eye on how you’re spending, maybe give your money goals another look, and stick to your budget like glue. These are important steps to dodging the lifestyle creep bullet. By taking charge, you’re keeping things balanced, making sure you’re on track for stacking up that wealth down the road.

How to Fight Lifestyle Creep

Lifestyle creep isn’t always a bad thing. Upgrading your living standards is healthy. However, being mindful of your financial health and you are within the boundaries of what you can control. In addition, none of your actions should have an impact on your long-term financial goals. Keep your discretionary spending under control is the primary method to keeping the lifestyle creep at bay.  Here are some helpful strategies.

Budget – Budget and the Budget Some more:

The fundamental principle of good financial management is Budgeting. Your budget is not a constant. It is an evolving financial management tool. Using a budget is the best way to keep track of what is coming in and what is going out in terms of your finances. A budget is a means to keep your financial goals in check

Sticking to a budget isn’t always easy, but most people recognize how crucial it is, especially if money is tight. For example, if someone had a tighter budget before and loves fashion, their only options may have been budget clothing lines or to limit how many outfits they buy a month. Or if someone on a tight budget likes video games, they probably waited for a sale or rented them.

Staying realistic with your finances:

This will help keep you on track, too. Again, if you want to move for better schools, research houses before picking one. Account for all costs to avoid becoming house poor. If a major expense like a home gets too large, you won’t be able to focus on the other financial parts of your life.

Using Cash for Wants :

To manage your money/spending to avoid lifestyle creep, using cash for “wants” spending helps prevent overspending. This will enable you to better stick to your other financial goals. Also, never forget that the more frugal option can be just as fun or rewarding! Whether it’s clothing or other necessities, there’s plenty to love at lower price points. If you need something, consider the lower-priced option first. For fun activities, look for cheaper alternatives, like going out for lunch instead of dinner.

Automate Savings and Investments:

Before your income grew you still had a routine and a lifestyle that you were probably comfortable with. Therefore, whatever extra cash coming your way now is technically a bonus. However, this does not go to say that you should not improve your quality of life with enhanced financial capacity. Adding most of the income to savings and investments is a good way to stop lifestyle creep. Automating the process will help you prevent increased discretionary spending with little to no effort.

Last Updated on January 11, 2024 by Dilini Dias Dahanayake