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Here’s a fun question for you: How do you prevent lifestyle creeps or reverse it when you realize it’s happening?
By Investopedia:
Lifestyle creep occurs when an individual’s standard of living improves as their discretionary income increases and their old luxuries become new necessities. The increase in discretionary income can be through an increase in revenue or a decrease in costs.
The hallmark of lifestyle creep is a change in thinking and behavior that sees spending on non-essential items as a right rather than a choice. This can be seen in a “you deserve it” spending decision attitude rather than thinking about the opportunities that saving money will provide.
Here’s what I did when I realized this was happening, but I can’t wait to hear what it did!
{related: Not sure what to do first/next on your personal finance journey? here is our money roadmap}
How to Tell Lifestyle Creep?
Have you ever received a raise of $5,000 or $10,000 and felt absolutely no difference in your daily life? Assuming you don’t transfer the money right away automatic investments or auto save goals, this lifestyle creep – you are, without realizing it, somehow, spending $5,000 or $10,000, it doesn’t matter. (Okay, okay, whatever the after-tax hike is, it’s what you spend.)
That’s a lot of money! If you were to lose them all at once, you’d say WOW. But instead, it kind of oozes out of all the little purchases and decisions you make on a daily basis.
Maybe you go to Starbucks 3 times a week instead of 2 times. (Remember the old example with avocado toast…) Maybe you bring your lunch one day less or start buying more convenience foods. Probably not big purchases but rather small, everyday choices.
{related: financial tips for new lawyers (or other women at their first high-paying job!)}
How to Prevent Lifestyle Creep?
Think about boring financial goals first. Are you maximizing your retirement accounts? Do you have any unpaid debts? student loans to pay? Always look for boring, tax-savvy goals first.
Other tax-focused goals we talked about: 529 accounts. Roth IRAs. Health savings accounts.
When you think of boring things, then:
Do this deliberately. It’s a weird rule to be this close to the top, I know, but what kills me when it comes to lifestyle creep is that it doesn’t suddenly feel like you’re living a more luxurious life or taking exotic vacations – at least with me, I regularly make decisions I wouldn’t have if I had a tighter budget. .
that’s why i say it’s important set your priorities. For example, when I was single and fresh out of law school, I had no idea what was next, so my goal was to save as much as possible.
Will I stay at Big Law? in NY? Will I marry a debtor? vb, etc. So in my mind, there had There are no intentionally good reasons to overspend. I have set aside a reasonable budget for myself. I bought an affordable flatAnd as soon as I could, I got the extra money in my checking account.
It may seem a little different these days – we’re trying to travel more, so all of the purchases we’ve made on these lines are okay, at least in my head.
Could we choose cheaper hotels or fly shorter than ideal? Sure—but that won’t make us want to travel any more, so it’s okay to spend sensibly.
Another thing I’m happy to spend money on, at least right now, is making our life easier – so it’s worth it to me to buy pre-chopped vegetables or already prepared chicken instead of making my own. extracted from the bone.
After all, it’s okay to spend more on the things you love or make your life better – it’s yours that matters to me. to choose do something deliberately.
Re-evaluate your savings goals with these intentions in mind. I wrote my love before auto save for multiple financial goals — and that’s one of the first things I did when I realized that lifestyle was creeping up.
What are our goals? Where can we save more? That’s easy enough for our travel destinations — we start putting extra money into the vacation fund. If it was $250 a month before, I ask myself if we can increase it to $350 a month or more. When the account gets big enough, it usually notices and I say, Ah, I really should plan a trip somewhere.
Make a budget for softer priorities. For example, my goal of “making life easier” is much more difficult to quantify in terms of increasing our monthly savings. If you previously had a budget for groceries, it’s easy enough to spare yourself more money for that budget.
If you haven’t already kept a budget, you can go back to find out how much you’ve spent in the past – programs like Mint are great for this – and then you can adjust accordingly. But if that doesn’t sound good, there’s always the last option:
Withdraw the money from your checking account. Since we don’t usually follow a tight budget, that’s what I usually do – but a warning that this is very annoying!
It’s like some people have a pair of pants, you know if they don’t fit, you have to turn down the food – when I start having to carry money from various accounts to pay the credit card bill, I know it’s time to cut.
Sometimes I get tougher by deliberately raising other savings or investment goals or trying to keep only $X in my checking account and shifting the rest to investment or savings goals. A few months are irritating – but it often helps me manage my spending while chasing us for bigger goals and priorities.
{related: how to set up auto investment}
Readers, what about you – how do you prevent lifestyle creep? How do you know it’s happening and how do you reverse it when you realize it’s happening?
Stock photo via Deposit Photos / SIphotography.
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