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Lifestyle Creep: Financial Security’s Sneaky Nemesis

Lifestyle creep happens when someone begins increasing their discretionary spending when they get a bump up in pay. As the name implies, it sneaks up on you! Continue reading to learn more, including how to prevent or get out of lifestyle creep. 

What is lifestyle creep?

Lifestyle creep is a personal finance phenomenon involving lifestyle inflation. However, when this happens, discretionary spending is perceived as a necessity, as opposed to a want. In other words, discretionary spending is perceived as a right, not a choice, as one’s standard of living improves.

Common signs of lifestyle creep

lifestyle creep uses the word “creep” because it catches you off guard! For this reason, you may not even know when you’re experiencing it until it’s already happened. Here are some common signs to look for:

Changed attitude about spending money

When you perceive buying differently than you once used to, that could be lifestyle creep. Perhaps you find yourself thinking “I deserve this” or “I’ll earn money again” before purchasing something. However, in the past, you didn’t think this way. 

Upgrading purchases

A common way lifestyle creep sneaks in is through travel. Maybe you always stayed in 3-star hotels, but now you only stay at 5-star hotels. Or you upgrade your flight seat when you always flew economy before. However, it can be seen elsewhere. Possibly at the coffee shop you upgrade to a fancy latte when before you always got drip coffee. 

Going out frequently

It hurts your bank account to have someone else prepare your food and drinks. If you find yourself going out to eat more or having more nights out with friends, it could be a sign of lifestyle creep. 

Luxury buying

If you find yourself buying more designer clothing or luxury goods, this is likely attributable to lifestyle creep.  

Overleveraging assets

Sometimes people experiencing lifestyle creep purchase a second property or other assets, like recreational vehicles. Alternatively, some might get a new car or switch homes when they don’t need to. They may max credit cards and make other poor financial decisions.

Paying for services

People experiencing lifestyle creep may pay for services they didn’t use to before. This could be paying for a housekeeper or upgrading to using Uber instead of using public transit. 

How do we fall into a lifestyle creep situation?

When beginning to work, we all start with a certain base level of earnings. Over time, pay raises, promotions and job changes can happen. With this comes increases in earnings. Instead of maintaining the same budget, many choose to increase their living expenses too. However, this pattern can result in lifestyle creep. The feeling of earning more is great, but it can motivate the desire to “treat yourself” when it’s not necessarily the best decision. 

Why it’s important to avoid lifestyle creep

Keep in mind that just because you’re making money, it doesn’t mean you need to spend it. At one point, lifestyle creep can set you back. Lifestyle creep is one of the most common ways people end up in financial trouble. They get comfortable with a standard of living that leaves little wiggle room. They may manage their bills and debt okay, but one setback, like a layoff or medical issue, leaves them relying on debt heavily. It’s the beginning of a debt spiral that can take years to navigate out of.

There’s something to be said for being in the headspace of always wanting more and materialism. While there’s nothing wrong with wanting something, when it becomes a habit it’s not necessarily the healthiest way to live. In reality, it’s much more valuable to spend on things that add value to your financial health or life in general – not just a quick purchase that makes you feel happy for a fleeting moment. 

In fact, you will achieve financial goals a lot quicker if you stick to your conservative budget regardless of increases in earnings. Instead of spending your discretionary income on things that don’t build wealth, save money. Do you feel the urge to splurge? Convert that energy towards finding financial independence!

Where lifestyle creep happens most

Lifestyle creep affects the young and the old the most. People who are mid-age don’t seem to experience lifestyle creep as much, but it depends on each person’s circumstances. 

For the youth, many have little income, perhaps none at all. When a young person gets their first job, the spike in income can be thrilling. Many youth haven’t learned to budget and don’t understand the cost of living yet. The combination of these two factors can quickly lead to lifestyle creep. If this is you, try not to worry! You have your whole life ahead of you and this is a minor blip in your financial journey. 

On the other hand, people nearing retirement tend to experience lifestyle creep as well. At this stage, they are at the peak of their earning potential. In addition, they’ve paid off debts related to assets, like cars and homes. They’ve successfully built wealth and the next step is retiring. However, it’s important to remain humble so your retirement savings aren’t affected by lifestyle creep.

Tips for avoiding a lifestyle creep situation

Set visionary goals

Sometimes a boring old budget isn’t enough. It’s too focused on the short term. What do you want to save money for? What is your greater financial plan? This could be to buy a home or go on a dream vacation. Whatever it is, remind yourself of this goal anytime you feel like overspending.

Change social circles

This can be tricky, but sometimes it’s necessary. If you’re surrounded by people who live pay cheque to pay cheque or above their means, it’s been proven that it’s more likely that you will too. Really want to make a permanent change? Finding a group of friends with the same approach to money as you may help.

Reduce or cut off social media

The biggest downside of social media is being bombarded with ads and people “living their best life”. This can trigger your subconscious and push you to buy something you wouldn’t have otherwise. 

Practice gratitude

This one might feel a bit cliché, but it works! Lifestyle creep often comes with the habit of wanting more and more. What about the things you already have? Try to think of what you’re grateful for when you feel like splurging. It can be as simple as being grateful you ate today, have a roof over your head, or got to catch up with a dear friend.

Tips for getting out of a lifestyle creep situation

Address debts quickly

If you acquired debt because of lifestyle creep, it’s time to face the situation head-on! Acknowledge the financial situation and figure out a plan to get out of credit card debt or other financial obligations.

Revisit your budget

Lifestyle creep often happens when someone deviates from their budget. Revisit it and remind yourself what you’re working towards. Also, be sure to consider your cash flow. Just how much wiggle room have you given yourself or need?

Tell friends and family

It can be painful to share failures with friends and family. Try switching your perspective by seeing sharing your situation as a good way to maintain accountability. This will help you get back on track and stay there!

Get another source of income

Debts resulting from lifestyle creep can be challenging to eliminate. Earning extra cash will help you pay off your credit card and any other debts. Plus, it can be a good opportunity to take stock of your lifestyle. Is that daily Starbucks really worth taking on the extra work? Maybe it is, great! If not, now’s your chance to solidify changes that allow you to align with what you really want.

Don’t let lifestyle creep get the best of you

At the end of the day, we’re all on our own financial journey. If you’ve gotten wrapped up in lifestyle creep, the most important thing is to be kind to yourself. We’re all human after all! Then, figure out how you’re going to resolve the situation. We all make mistakes and sometimes they’re valuable to the learning process.

Do you need help building a balanced budget to avoid or escape lifestyle creep? Consolidated Credit can help! Reach out today to get the assistance you’re looking for.

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