Financial experts often warn about “lifestyle creep” — the common practice of spending more as you earn more. But is this always a bad thing? Or can upgrading your life as your income increases sometimes be “worth it”?
GOBankingRates spoke to money pros about whether or not lifestyle creep is ever OK — here’s what they had to say.
It’s OK To Spend More — as Long as Your Savings Increases Too
Spending more isn’t necessarily the problem — the problem is when your spending increases, but your savings remains stagnant, said Devin Carroll, owner and lead advisor at Carroll Advisory Group.
“As your income grows, your budget should be adjusted to meet the new level of incoming funds,” he said. “This is where so many people mess up. They get a raise and buy a new house or car and that takes up all of their increase. Instead, someone should readjust the budget every time their income adjusts.”
Carroll recommends sticking to the 50/30/20 budget and adjusting your budget whenever you get a pay increase.
“The rule of thumb is to spend 50% of your budget on needs, 30% on wants and 20% on savings,” he said.
Jay Zigmont, Ph.D., CFP, founder of Childfree Wealth, recommends setting aside half of your raise for long-term savings.
“Try putting half of your raise each year towards retirement and allow yourself to enjoy the rest,” he said.
It’s OK To Spend More on Things That Bring You Joy
If you do decide to spend more as your salary increases, you should be mindful about putting this money toward things that really matter to you, said Robert R. Johnson, Ph.D., CFA, a professor of finance at Creighton University’s Heider College of Business.
“Determine what you really value and spend money on what provides you the most happiness — or as economists would say, utility,” he said. “For instance, I am a cyclist and that provides me happiness. I spend money on cycling and going to cycling events. Contrary to what Suze Orman says, if going to the local coffee shop and buying a cup of coffee provides you utility, do it. We are all different and should prioritize our spending to be consistent with our unique makeup.”
Johnson notes that spending can become a problem if you start spending money on things that aren’t actually important to you.
“The problem that people get into is that they spend money on everything and don’t prioritize,” he said. “Prioritize what makes you happy and direct your resources there. Minimize spending on items that don’t really matter to you.”
When Lifestyle Creep Becomes a Problem
The common thread here is that spending more is OK when you do so mindfully.
“The ‘creep’ part of lifestyle creep suggests a lack of awareness about how much we’re spending. In other words, there is nothing wrong with increasing your lifestyle, but it should be done mindfully,” said Derek Hagen, financial therapist and founder of Money Health Solutions. “Lifestyle creep happens when people increase their lifestyle because they think they are supposed to, or because they aren’t paying attention.”
Even if you are spending on things that matter to you, a sign that you’ve taken your increased spending too far is that you’ve started to accumulate debt.
“Be wary of debt and credit cards,” Childfree Wealth’s Zigmont said. “In many cases, lifestyle creep is seen in increasing credit card balances. If you can live debt free and make enough progress toward your goals, then it is OK to spend some money.”
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