Lifestyle Creep: Avoid Becoming a Victim to This Financial Pitfall

Lifestyle inflation can wreak havoc on your financial goals.

Imagine it. You finally get that promotion you’ve been anticipating for months, and your new job title comes with a hefty raise. To celebrate, you make reservations for you, your significant other and four of your closest friends at the hot, new restaurant downtown. You graciously pick up the tab.

You enjoy eating out at the latest and greatest restaurants and decide that with your new raise, you can afford to spend hundreds of dollars a month on dining out. You also decide to engage in retail therapy several times a month because you need to look perfect for your new role at work.

Over time, you keep finding ways to justify spending more until that once hefty raise becomes a mere memory. In your free moments, you desperately contemplate getting a side hustle to help break even.

Welcome to lifestyle creep — a surefire way to lose your financial perspective and footing.

Before you immerse yourself in all things related to lifestyle creep, here’s a quick preview of what this guide will cover.

See: 15 Signs It’s Time To Ask For a Raise — and How To Do It

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What Is Lifestyle Creep, aka Lifestyle Inflation?

Lifestyle creep occurs when people’s standard of living improves as their discretionary income rises.¬†It’s not something that happens to people overnight. Instead, it’s a money-draining cycle of working harder and earning a raise. Then, because you’re making more money, you spend more money. Because you spend more money, you work harder to earn more money, and the cycle keeps repeating itself because it seems like you never have enough extra dollars.

If you’re curious about situations that can cause lifestyle creep, here are few spending scenarios to consider.

1. Buying a New Vehicle Because You Can

Perhaps you bought that new car because it features a new, improved body style, and you don’t want to be stuck with an older-looking car — even though it’s paid off. Or maybe you’re planning to expand your family someday, so you decide to prepare for it now by buying a roomier — and more expensive — vehicle. You can try and justify it all you want, but if you have a perfectly good vehicle, why do you need to buy a different one? You don’t.

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2. Eating Out Frequently Because You Don’t Feel Like Cooking

On average, it’s almost five times more expensive to order restaurant delivery than it is to cook food at home, according to a study by AI food tech company Wellio.

You might also think that using a meal kit service is the answer to your prayers — eating gourmet-style food while saving money. But on average, these services are about three times more expensive than if you buy the ingredients at the store and prepare meals yourself.

3. Indulging In Expensive Habits

Your day-to-day Starbucks habit or your propensity for renting the latest pay-per-view movies several times a week can add up, making for a bad spending habit. For example, if you pay $5.99 to rent a movie several times per week and buy a $4 coffee drink every weekday, that’s over $150 per month you’re spending needlessly.

There are always cheaper, more budget-friendly ways to do things, so consider seeking them out.

4. Buying or Renting a Larger Home Than You Need

When you’re one person, do you need a three-bedroom, two-bath house? When you’re a couple with a baby, is it necessary to own a home with four bedrooms and three bathrooms? Unless you got a really good deal, you’re probably spending more money than you need to if you approach homebuying like this.

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5. Buying Lunch for Others To Avoid Eating Alone

You might not like to eat out alone, but footing the bill for yourself and one or two co-workers a couple of times per week can add up quickly. Why not brown bag it and eat in the break room instead?

6. Failing To Increase Your Savings When Your Income Increases

It makes perfect sense to up your savings contributions as your paychecks become fatter. If you don’t, you’re missing out on an opportunity to save more and make more from the interest your money could earn.

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Why Is It Important To Avoid Lifestyle Creep?

It’s true that as you make more money, you should be able to spend money. But that doesn’t mean to mindlessly spend just because your income stream is flowing wider and more rapidly than it did before.

If you spend everything you make, living from paycheck to paycheck, what will happen if you suddenly need money? For example, you or your spouse could lose a job or be surprised by an unexpected but necessary medical procedure. Or you could have to pay out-of-pocket for a major expense your auto, home or medical insurance won’t cover. Unfortunately, all of these scenarios could cause you to turn to your credit cards for the extra funds, driving you deep into a well of debt.

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Check Out: Money Secrets Experts Want You To Know

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How To Avoid Lifestyle Creep

The good news is that by being mindful, you can avoid lifestyle creep and its dangers. Here are some examples to consider.

1. Write Down Your Financial Goals

Make long-term money goals and keep them in front of you. Living in the moment and spending impulsively can lead to lifestyle creep. Take the time to write down some long-term money goals. Then, find a way to keep those goals in front of you. For example, schedule a financial goal review on your calendar each week and spend a short block of time contemplating your goals and how you’ll achieve them.

2. Look at Extra Income as an Opportunity To Save — Not Spend

When you earn a bonus, receive a tax refund or are lucky enough to gain some other type of financial windfall, make it a rule to put the majority into savings. Tell yourself you’re investing in your future.

Also, consider setting up automatic withdrawals from your checking to your savings, so there’s no room for error, like forgetting to save. And when you receive a raise or get a better-paying job, increase your contributions to match the income increase — less budgeted expenses — to avoid falling victim to lifestyle creep.

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3. Budget for Large Expenses as Money Allows

For example, just because you bought a starter home doesn’t mean you have to upgrade to a newer, bigger, more expensive home when your income increases. Instead, save up for improvements to your current home and complete them as your finances permit. That can help you avoid the trap of racking up credit card debt or taking out loans you’ll have to pay back.

4. Allow Yourself Occasional Indulgences

It’s a mistake to restrict your spending to the point that you can never splurge. So allow for these types of things on special occasions. When you do indulge, try to spend on something of value rather than something fleeting.

5. Don’t Try To Keep Up With Your Social Circle or Family

If you’ve ever heard someone say, “He’s trying to keep up with the Joneses,” it means that the person is striving to maintain a financial status he may not be able to afford. Instead of trying to keep up with the liberal spending habits of friends or family members — new homes, new cars, luxury vacations — try spending well within your means and saving consistently.

To do this, create a budget and stick with it. Check out these easy-to-use budget templates to get started.

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How Avoiding Lifestyle Creep Can Benefit You

Even though it can be fun to spend money, you’ll never have an endless supply. When the funds run out, the consequences aren’t worth it. Avoiding lifestyle creep means you’ll have savings available for emergencies and large, planned expenses alike, and you won’t have to struggle from paycheck to paycheck. Saving for retirement will be like second nature, making it easier to retire on time and enjoy life on your terms.

Avoiding lifestyle inflation can also help you understand what makes you happy. Reckless spending can cause you to become indifferent, making the things you once found exciting seem commonplace. But restricting spending to special occasions can help you appreciate what your money can buy and be mindful of what you spend going forward.

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About the Author

Cynthia Measom

Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as Chron.com, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.

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