How Lifestyle creep can impact your wealth (And how to avoid it)

Lifestyle creep Plan Responsibly
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Earning money as you progress in your career feels great. It could be you getting a raise or even a bonus at work. Either way, you put in the work, land the extra income, and feel ready to boost your budget. And if you’re like most people, the more you earn, the more you spend.
Earning money as you progress in your career feels great. It could be you getting a raise or even a bonus at work. Either way, you put in the work, land the extra income, and feel ready to boost your budget. And if you’re like most people, the more you earn, the more you spend.

You feel tempted to take your hard-earned money and treat yourself to a relaxing vacation in probably Seychelles or even gift yourself the latest tech trend and exclusive fashion outfits. You find it easy to upgrade your lifestyle and revamp your wardrobe without a second thought. This habit is commonly known as lifestyle creep or lifestyle inflation. It is one of the biggest problems that prevent people from growing wealth.

What is Lifestyle Creep?

Lifestyle creep occurs when a person spends more as he earns more. It is when you’re driven by an impulse to buy things or to spend on things mindlessly rather than intentionally. One of the major contributing factors to how much you spend and save up is always the kind of lifestyle you lead.

It becomes worse when you can’t create a balance between your income and your spending. You find yourself trapped in a rat race of paycheck-to-paycheck and trying harder to earn more money to maintain your lifestyle.

Note that living paycheck to paycheck doesn’t only happen to people struggling to get by. Many high-income earners can barely keep up because the amount they earn equals the amount they spend.

Example of Lifestyle Creep

Mheenat is a spinster. She works as an accountant at a renowned company with a monthly payment of ₹100,000. Six months later, she got promoted to head of accounting, and her salary doubled.

She moved into a studio apartment closer to her office. Soon, Mheenat adopted a pet, signed up for a gym class, and joined the single lady fashion club that alerts exclusive members of the latest trendy outfits and collections from top-ranking brands like Nike and Gucci.

Since Mheenat leaves home for the office by 5:30 am from Monday to Friday, she barely has time to cook a homemade meal. Hence she eats out at one of the best 5- star restaurants in India. She hangs out with friends on weekends. Together, they tour exciting places within and outside the city.

Soon Mheenat realized something. The more her income increases, the more she spends to keep up and maintain that lifestyle. Though she doesn’t lack anything, she finds it difficult to save and not touch or borrow it when she wants to buy an item that catches her eye.

Did you stop to think about the things she doesn’t necessarily need? Things she could cut down on like gym membership, fashion clubhouse, eat-out?

How To Identify Lifestyle Creep

Many have asked, “How do you know if you’re experiencing lifestyle creep?” And truth be told, it’s easy to find out if lifestyle creep affects your wealth through the following:

1. Increased Spending 

When you find yourself buying things on impulse, your spending increases. You may be making more money and finally can afford things you dreamt of, which is good. But the surge in spending will only suck out your ability to save or even help you achieve your dreams of becoming financially independent.

2. Little To No Savings

Have you been working and earning money with little to no savings? Then you need to revisit your budget as your lifestyle may slowly be creeping into your wealth.

3. No Budget 

One of the mistakes you can make in managing your finances is having no budget system. Therefore you find yourself hooked on a spending spree that has no limit and, subsequently, the lifestyle creep.

4. No Tracking System

When there’s no tracking system, it is easy to forget where and how you spend your money. It can even create loopholes in your savings and make you struggle to balance your income with your spending.

How to Avoid Lifestyle Creep From Eating Your Wealth In 4
Simple Steps.

Adam Clear, the bestselling author of Atomic Habits said, “In the long run, the quality of our lives often depends on the quality of our habits. If you have good habits and live right, it will build you physically, mentally, and financially. So, if you want to prevent lifestyle creep from affecting your wealth, there are a few good habits you should cultivate.

1. Set Financial Goals

When planning your financial goals, you should consider the 3 P’s of investing. This includes Purpose, Plan, and patience. Do you want it to be a short-term or a long-term financial goal? The short-term goals may be to finish an online course– that allows you to market yourself or your brand better or pay for your tuition. The long-term goals can be about saving for retirement, having a business of your own, etc. Once you’ve created and prioritized your goals, it’s time to budget.

2. Create Your Budget and Stick To It

Budgeting is about finding a balance between what you earn and what you spend. Besides, having extra cash doesn’t necessarily mean you have to spend more. Here’s a pro tip: Go through your budget list to see how much you spend, save and invest. Identify areas where you might be expending too much and see if you can cut back on them.

However, If your current budget works well for you, you can consider saving or investing your extra income until you’re ready to increase your living expenses.

3. Automate Your Savings

If you want to increase your income and cut off lifestyle creep, the first thing you’ll need to do is to automate your savings. Automating your savings means that you’ve set up a system that automatically deposits your money into an investment account and uses it to make more money. You see, people who automate their savings, end up saving a lot more over time. That way, your money becomes a tool instead of a goal.

4. Find The Balance Between Living Well And Saving

As much as you want to avoid lifestyle creep and grow your wealth, it should not stop you from finding the sweet spot between living well today and saving responsibly for the
future. You can celebrate yourself accordingly and still prioritize value over other things. All it requires is balance. And this is where the value of a financial planner becomes clear and valid. BeyondMoney can run these projections for you and show you the impact of your decisions and whether to allow for some lifestyle creep on your financial future. Showing this impact is one of the most important things I do with my client.

Wait… there’s more!

You can’t afford to go back into lifestyle creep and keep struggling to maintain balance when you can make room for things important to you and still build your wealth. It’s a matter of choice. And don’t forget, it’s about securing your financial future.

Now that you know how to avoid lifestyle creep, you need to know how to create a plan that helps you become financially independent fast here.


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