Follow these tips to avoid lifestyle creep and ensure you are living within your means. As your income grows, continue to check expenses and costs to help set yourself up for financial success now and in the future.

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What is lifestyle creep?

Lifestyle creep, also known as lifestyle inflation, is the situation where individual and families experience increased spending because of an increase in pay. So, if you recently received a promotion, a bonus or started a new job with a higher salary, you may find yourself—whether consciously or subconsciously—spending more on material items. This boost in spending may be stretching your budget further than recommended for maintaining adequate savings and achieving your long-term goals.

Of course, progressing in your career is a positive milestone in your life goals. Just make sure to approach the salary bump with a smart financial plan.

How do you know if you’re experiencing lifestyle creep?

Lifestyle creep is so named because it can sneak up on you. You can find yourself spending more whether it’s smaller splurges like going out to eat more often or purchasing more luxury goods like fancy olive oils, to larger expenses like a second car or vacation home. Here are some of the signs you’re spending more than you should. 

• Your income has increased, but you didn’t similarly increase how much you’re saving

• You’ve become too comfortable with your financial situation and have stopped “officially” budgeting

• You no longer track your purchases or account balances like you used to

• You find yourself becoming nonchalant to the prices of goods and services you really want (“I have the money, why not?”)

• You notice that you’re suddenly racking up debt even while pulling in a larger paycheck (a tell-tale sign of overspending)

Preventing lifestyle creep

To ensure you don’t fall victim to lifestyle creep, you should first start by assessing your spending. Determine where your money is going, if it’s a one-time expense or a recurring payment, and track it.

Once you have your spending accounted for, make a budget (or dust off your old one) and stick to it. You can also revisit your budget each month to ensure you’re staying within your spending means. It can also be helpful, if you have the past documents, to review your budget from 3-5 years ago. This exercise can help you understand how far you’ve come in your finances and help you re-center on financial goals.

Also, don’t forget to account for emergency funds in case you need access to cash for an unexpected financial situation. Check in on your savings account balances and give them a deposit bump if needed. 

Fixing lifestyle creep

It’s not too late to reverse the lifestyle creep trend if you’ve found yourself overspending. Once you’ve audited your weekly and monthly expenses, find ways to reduce the outflow.

Automatic purchases: Are you paying for a monthly subscription you don’t use or need? Consider canceling it. We live in the age of the subscription service model, so check everything from streaming services to monthly coffee deliveries and auto-refill shopping purchases.

Luxe grocery lists: Have you noticed yourself saying “yes” to any grocery impulse? Are we you still deep within a COVID-era baking or cooking hobby that’s adding expensive ingredients to your pantry?  Consider meal planning to prevent waste and reduce your exotic ingredient recipes.

Re-emergence excitement: While the pandemic isn’t over, many are making lifestyle changes that allow them more socialization and out-of-the-house activities. If you’re one of these people, carefully track your entertainment, restaurant and activity expense to ensure you balance fun and financial savvy.

Another way to combat lifestyle creep is to increase your income, but this is a short-term fix compared to the longer-term benefits of right-sizing your budget. To earn a little bit of extra income, consider selling clothing or unwanted and unused items online or at a thrift store.

A popular option is to freelance or start a second job which use your top skills or interests to make money. Before diving into a side hustle, check on any tax implications for secondary income.

Set yourself up for financial success

Improving your lifestyle because of positive changes to your finances is not a negative—as long as you’re considering your long-term financial goals and being mindful of your full financial picture. If you’ve been using credit cards or other lending options to pay for your recent expenses, immediately reassess spending and make a payoff plan. When building your budget, don’t forget to account for interest accrued from credit cards or loans.

How to approach a lifestyle level up

An alternative to succumbing to lifestyle creep is to mindfully plan your discretionary purchases. It’s always beneficial to set short-term and long-term financial goals, even if the goal is simply to “plus up” your everyday experiences.

Setting realistic financial goals can be the driver you need to improve and achieve financial success, without falling victim to lifestyle creep. And, if something like a vacation home or a gold-star charcuterie spread is really important to you, then it will be similarly important to create a budget and plan to accomplish that goal without sacrificing your financial stability.

 

Abby Wendel, president of consumer banking at UMB.