Lifestyle Creep and How to Avoid It 

Think about the last time you got a raise or bonus. It was exciting, right? It was probably so exciting that you felt the need to celebrate the occasion in some way!

While it’s entirely acceptable to reward yourself (in fact, you should), avoiding lifestyle creep is also important.

Have you ever noticed that as your discretionary income rises, your expenses rise to match it? This phenomenon is known as "lifestyle creep," and can stand in the way of you reaching your long-term financial goals. 

Lifestyle creep occurs when your expenses and spending habits extend beyond the money you earn. The end result can prevent you from building an emergency fund and properly saving for your retirement.


Why is it important to live below your means?

By living below your means, you can achieve financial freedom. Being out of debt enables you to save more money for unexpected expenses or events such as a job loss. In 2020, over 4 million jobs have vanished due to the pandemic.

The Federal Reserve reports that 39% of Americans don't have enough money on hand to cover a $400 emergency.

Every adult should try to have enough money in savings to cover a minimum of three months of essential living expenses. If you are living above your means with no savings and counting the days between paychecks, it can be nerve-wracking and set you up for financial failure.

It’s important to start living below your means now to start saving money immediately, pay off debt, and also have some peace of mind. 

So, when it comes to controlling lifestyle creep, what can you do? Keep reading for tips on how to thrive, no matter your circumstance. 


1. Reward Yourself Wisely

So, you just got an awesome raise or bonus! Congratulations on all of your hard work. Now what? Well, you don’t have to adopt a “no spend” lifestyle. 

It’s normal to want to treat yourself for such an accomplishment. But before you do that, make sure you’ve paid your bills and any necessities you’re responsible for covering first. The trick is to plan ahead to try to prevent surprises. 

Instead of going on a shopping spree where you buy just anything that catches your eye, especially when considering purchasing a home, shop thoughtfully. 

If there’s something you would like to buy, write it down, but don’t buy it for 30 days.

If you still want it after 30 days, go for it! This method helps cut down on impulse spending and helps you focus on things you really want. Then, you can begin putting the extra money you’re earning into savings accounts, retirement funds, and other financial goals.


2. Invest in Yourself First

Before anything else in your budget, make additional contributions to your emergency fund and retirement accounts.

An emergency fund refers to money stashed away that people can use in times of financial distress. The purpose of an emergency fund is to improve financial security by creating a safety net. 

So, pay yourself first. You can achieve this through automated contributions, making sure that as soon as you get paid, this money is already being allocated to these accounts.

That way, any additional money is automatically deposited, and you will not miss that money in your checking account because you did not really see it in the first place. You’ve been getting by on your current budget, so the additional savings should not need to be touched.


3. Set Financial Goals

Lifestyle creep can be a real threat to your long-term goals. A huge decision like purchasing a home, or even small purchases of $20, can add up quickly and keep you from building your long-term savings.  

So, write down your goals. Every time you go to make a purchase, your goals will be front and center, making you think if the transaction is worth taking money away from reaching your dream.

Having financial goals can be one of the best ways to keep you focused, improve your habits, and keep you motivated to make steady improvements to your financial life.


4. Make Gradual Changes

Getting a raise or bonus can make you feel like you need to go out and replace what you own right away. You want the dream home. You want the dream car. But, focus on things that really matter to you and will substantially improve your life. 

As you build up your savings, you can make gradual upgrades, as long as you stay in line with your budget. 

So, do not significantly increase your cost of living and your overall lifestyle just because you can afford to in your current situation. When in doubt, stick to your plan, consult with a professional, and look toward your financial goals.


5. Budget Your Spending

If you’re serious about taking complete control of your spending (and therefore, savings), having a personal budget is a must. Budgeting is a great financial exercise that shows you what you’re earning and what you’re spending. 

Then, you’ll quickly be able to identify patterns and trends in your spending habits. Chances are you’ll identify what areas you can improve almost right away.

Make sure to not constantly adjust your budget, as this can defeat the purpose of having one.


Bottom Line 

With all of your hard work, you deserve to enjoy your success and corresponding paycheck. But, it is easy for this mindset to get out of control. So, do not end up in debt, and follow these tips to keep lifestyle creep in check and stay within your budget.