- Lifestyle creep is the common pattern of spending more money as you earn more money, getting used to higher levels of luxury and convenience as your new normal.
- Lifestyle creep typically occurs after someone gets a raise, a new job with a higher income, or pays off debt.
- The biggest sign of lifestyle creep is a lack of saving for emergency or retirement funds.
- Read more stories from Personal Finance Insider.
You might think that an increase in salary means you’ll have more money in your bank account, but this isn’t always true. In fact, lifestyle creep can make it so you have less money on hand.
Lifestyle creep, or lifestyle inflation, is overspending after your income increases. For example, if you get a new job that gives you $20,000 more per year in take-home pay but decide to buy a (non-essential) car for $30,000, you’ll have more debt than before your raise. Lifestyle creep can take place over years and thus, be difficult to spot — unless you’re on top of your budget.
Here’s what to know about lifestyle creep, how to determine if it’s affecting your life, and how to avoid it in the future.
What is lifestyle creep?
Lifestyle creep is an increase in spending after receiving a raise instead of saving the additional income. It can also come around after paying off a loan if you decide to spend the extra money rather than directing it to savings.
“I have seen clients who make more money actually make their financial plans look worse because of lifestyle creep,” says Clint Camua, regional director and partner at EP Wealth Advisors in the Los Angeles area.
In cases of lifestyle inflation, the extra items like entertainment subscriptions and dinners out that you were living without prior to your increase in income now appear essential. It doesn’t only involve buying things, either — paying for new experiences can also factor into lifestyle creep.
“One example is a couple that recently paid off their mortgage and wants to spend the extra cash flow from making the mortgage payment each month to travel more,” says Robin Aiken, Principal at Homrich Berg Wealth Management. Rather than redirecting some or all of their new-found funds to a savings account, this couple wanted to designate the entire amount toward travel expenses.
How does lifestyle creep work?
Typically, lifestyle creep happens when people start to earn more money, either by receiving a higher income through a new job or raise or by paying off debt and freeing up money that went toward monthly payments. Once lifestyle inflation takes over, the new cash gets spent as fast as — or faster than — it comes in.
Lifestyle creep is a problem because it can prevent people from saving the right amount they will need for retirement or emergencies. Around half of US workers claim that debt payments stop them from saving enough for retirement. Not all debt is due to lifestyle creep, of course. But if your additional spending is for unnecessary purchases, lifestyle creep is a likely culprit.
It’s normal for your lifestyle spending to increase when you get a better income. You want to treat yourself after working hard to make that money. “Where it becomes problematic is when the increase in lifestyle outpaces the increase in income,” says Camua. “It then invades your ability to save for retirement, uses your emergency fund, or increases debt.”
Lifestyle creep can happen to anyone — no one is immune. It doesn’t require you to make six figures, and you aren’t off the hook because you didn’t buy a sports car. Lifestyle creep can affect everyday earners as much as more affluent households. Anyone can be convinced that they need to eat out most nights because they can’t find the time to cook or that their new job requires them to buy new office attire every few weeks.
Signs of lifestyle creep
- Your savings is stagnant. “If the amount you are saving has remained static even after a few years of raises and bonuses at work, that is a sign that you are spending all of the extra money you are making each year,” says Aiken. Not prioritizing saving can be disastrous for your overall financial health.
- Your spending has increased in many (or most) areas of your life. If you notice that you’re spending more money in general because you feel like you can afford it, lifestyle creep may be a factor. You may eat out more often, buy pricier gifts, take more expensive vacations, and sign up for several new memberships.
- You aren’t budgeting. It’s easy for lifestyle creep to take over when you don’t know where your money is going. If you don’t know how much money goes toward extra expenses each month, you can overspend without even realizing it.
- You don’t feel in control of your finances. Maybe you’re stressed every time you check your bank account balance because you know you spent too much. Or you look at your dwindling savings or growing credit card balances with dread and regret. This sense might be telling you that your lifestyle is exceeding your income.
How to prevent lifestyle creep
There are several strategies that experts recommend to stop yourself from falling victim to lifestyle creep. First and foremost: Make a budget. Revisiting your budget often can help you make sure your spending stays in line. “If you find yourself committing resources to, say, another car or a vacation home — probably a more extreme case of lifestyle creep — confirm that doing so doesn’t derail your plan,” says Camua.
Additionally, lock in emergency funds and retirement savings before anything else. “It is important to always make sure that any additional spending one does to improve lifestyle happens after being sure an emergency fund is established, savings for retirement aren’t curtailed, and consumer debt doesn’t increase,” says Camua. Doing your best to not increase credit card or loan debt after an increase in wages ensures you aren’t counteracting the benefits of the raise.
Once your savings is in order, any long-term consequences of overspending will be minimized. And Aiken recommends making saving as simple as possible. You can set up automatic transfers to your savings accounts that take place on pay day so you don’t have time to spend the money.
And finally, don’t stress over infrequent, small splurges. “Don’t forget to allow yourself occasional indulgences,” says Aiken. Instead, focus on the bigger picture.