What Is Lifestyle Creep, And How to Avoid It
Have you analyzed how much money you're spending on things you don't really need?
You might be falling victim to “lifestyle creep” without even realizing it. When was the last time you took a look at all of your ongoing expenses and the purchases you've made over the past month or year? Have you really analyzed how much money you're spending on things you don't really need or even use that much? Have you asked yourself if you'd be better off saving the money you're putting toward these things?
What is Lifestyle Creep?
Lifestyle creep is what happens when a person spends money on things that might be considered luxuries if they had less money to spend. This usually happens when the person gets a pay raise or when they have extra money to spend for some other reason, such as getting a loan paid off or coming into an inheritance. Essentially, a more luxurious life becomes the norm, even though these newer or increased expenses aren't necessities.
While it's certainly one's right to live how they see fit, letting lifestyle creep infiltrate your money habits means you're not saving the amount of money you could be, and that could be a problem for you in the future.
Who is Affected by Lifestyle Creep?
Lifestyle creep is often discussed in relation to millennials. This generation, which includes people between 23 and 38 years of age, is perceived by many to be a generation accustomed to living beyond its means. This is, of course, a generalization, and the reality is that while many millennials do live beyond their means to the detriment of their financial health, others are simply trying to keep up with the times and maintain the lifestyle they are already used to.
As millennial personal finance expert Erin Lowry says, "Lifestyle inflation is also sometimes entirely out of a person’s control. Gas prices fluctuate, public transit fares go up, taxes increase, landlords raise the rent, food becomes more expensive – the list goes on and on. Besides the unavoidable creep, early adulthood comes with expensive milestones and events, including marriage, attending weddings, buying a home, buying cars and having children. Plenty of these can be done frugally and within an individual’s means, but they still contribute to lifestyle inflation."1
Lifestyle creep isn't an affliction limited to younger generations. In fact, those entering retirement often experience it. "Such individuals, at five to 10 years before retirement, are typically in their peak earning years and have already paid off their longstanding recurring expenses, such as a mortgage or child-related costs," explains Julia Kagan at Investopedia.2 "Feeling flush with their newfound surplus of discretionary income, they may opt for more expensive cars, pricier vacations, a second home or a newfound affinity for luxury goods. Since the goal in retirement is to maintain the lifestyle one has become accustomed to in the years preceding retirement, these retirees require more funds to support their more lavish lifestyles. Unfortunately, they lack the resources to do this because they have spent their surplus cash flow rather than saved it to bolster a more comfortable retirement."
So, who is affected by lifestyle creep? Anyone with money to spare -- young or old. The fact is that it can happen to anyone who isn't careful with their money habits.
How Can You Avoid Lifestyle Creep?
If you've determined that you have indeed fallen victim to lifestyle creep and you want to rectify the situation, the first thing you should do is set up a savings account if you don't already have one. If you do have one, cut out some of the excess spending and put that money there instead.
If you get a bonus at work, your impulse might be to spend it on a big purchase you've been wanting to make. Try saving at least some of it. If you don't want to give up the extras, consider getting a side job to help cover the costs so you're still able to put away some of your income for the future.
Lifestyle creep often rears its head in the form of material items. Try to get in the mindset of appreciating experience over material goods. While there are certainly plenty of experiences that do cost money, there are also many other enjoyable ways to pass the time that are free or cost next to nothing. You can still enjoy life without draining your bank account.
Take some time to really pay attention to where your money is going. Go through each expense, item by item, and determine what you can do without. Then, put that money into savings or invest it. Your future self will thank you.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC