Lifestyle Creep: What is It & How to Avoid It

When you get a raise, a bonus, or a promotion, do you find yourself at the mall looking to update your wardrobe? 

Are you ordering take-out or dining out at high-end restaurants more frequently? 

Have you stopped looking for the cheaper non-organic options at the grocery store and buying anything and everything your heart desires? 

Perhaps you’ve even upgraded your home to one that is more modern, luxurious, and centrally located after landing that new promotion?

If you answered yes to any of the above, you’ve likely experienced what the finance world calls lifestyle inflation or lifestyle creep.

With lifestyle inflation, our income goes up at about the same rate as our spending. As a result, our finances don’t necessarily reflect an increase in income because we find ways to spend that money on things we convince ourselves we must have: including new wardrobes, homes, and hobbies.

Lifestyle Creep: What is It & How to Avoid It

Lifestyle creep is often most noticeable in the lives of those who were already living paycheck to paycheck. A raise may make us feel like we can afford more than we can. In this case, your debt load often increases even though your earnings increased too.

Common areas where people tend to increase their spending as their income increases:

1. Housing/Rent 

Maybe you decide to buy a house or you decide that with your new income, it’s finally time to upgrade your surroundings and move to that apartment by the beach. Higher rent, or spending more money on a mortgage may eat up more of your budget than it did before. If you are not financially prepared to make budget cuts in other spending categories, your new higher mortgage or rent payment may put you in debt.

2. New Ride – Car Upgrades

If you are upgrading your car because you’re of the mindset new job, new car, you may want to stop, review your finances, and seriously ask yourself: Can you afford the new car loan payment? Do you need a new car? 

Another thing to look at before upgrading your vehicle is whether you have any other expenses coming up that would make it difficult to afford the auto loan payments such as car repairs, auto insurance, maintenance, premium gas, or any other car-related expense. 

3. New Wardrobe 

It can get expensive to update your wardrobe – especially if you do it frequently. There are times when updating our wardrobe is unavoidable. Maybe you have to abide by a new dress code at work? Or you moved to a new state or country with a different climate than you are used to and you need clothes that are warmer or cooler than the ones you have. If that’s the case, there are ways to save while investing in a timeless wardrobe or updating your wardrobe with a few new trendy pieces. 

But if you find that you are frequently spending money to update your wardrobe in order to impress other people including coworkers, family, and friends? You may want to watch your spending when it comes to fashion.

4. New Hobbies

Maybe now that your income is higher you feel it’s finally time to take up a new hobby like golf or you decide to learn how to play a musical instrument? Perhaps you decide the days of choosing between streaming services are over and you opt to subscribe to them all.

Before you buy a new set of golf clubs, a guitar, or download every streaming service, take some time to figure out how much money you can dedicate toward your new hobby. Some hobbies are more expensive than others and you may find that without a limit, you may find yourself in debt due to overspending on your new hobby. 

5. Eating Out / Ordering In

When you work hard or your income reaches a level you never expected to reach, you may feel like treating yourself to coffee from the local coffee shop instead of brewing your own at home. Or perhaps you’ll treat yourself once a week to ordering lunch or dining at a more high-end restaurant. 

Have I Been Affected By Lifestyle Creep?

Lifestyle creep is common. But the easiest way to see if lifestyle creep is affecting your finances is to track your expenses and compare your current expenses and debt levels to your expenses and debt before your raise. 

Did you notice an uptick in spending in any category?

If you did NOT notice any changes in spending, your budget indicates that lifestyle creep is not affecting your budget at this time. 

If you did notice a change in your spending, perhaps expenses and debt levels increased after you received a raise, lifestyle creep is affecting your budget.

Although pop culture leads us to believe that the more we earn the more we should spend, the truth is you don’t have to change your budget or spending habits because you earn more. In fact, keeping your expenses at the same rate they are when you get a raise is one of the fastest ways to build wealth.

Even if you noticed lifestyle inflation in your budget, it’s not too late to get back on track. Look for ways to cut spending, at least temporarily, and/or increase your earnings – perhaps with a temporarily side hustle. 

3 Ways to Use Your Raise to Improve Finances

1. Debt Payoff 

If you are on a debt payoff journey, one of the most beneficial things you can do with a raise is to throw that money at your credit card debt. Not only will you pay off your credit card debt faster by paying more than the minimum payments, but you’ll pay less overall in interest charges. 

2. Money in the Bank

If you don’t have a savings or emergency fund, use the money from your raise or promotion to start one. As a general rule of thumb, your emergency fund should have enough money to sustain you for about six months or so. A good goal to aim for is to save at least 10 percent of your income and have it regularly fund your savings or emergency fund.

3. Treat Yo Self

You may be surprised to see us recommending spending money on yourself, especially if you have credit card debt. But the truth is rewards or incentives, especially when you are on a debt payoff journey, go a long way and set us up for long-term success. 

Looking to pay off high-interest credit card debt?

Schedule an appointment with one of our certified credit counselors here or request help from our team of financial education and credit coach professionals here.

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