Despite how common lifestyle creep is in peoples’ lives, no one really discusses it. Lifestyle creep, also known as lifestyle inflation, is simply caused by one thing:
An increase in income leading to an increase in spending.
No matter what race, religion, wealth class, etc. everyone caves in to lifestyle creep at some point in time. Lifestyle creep can be cyclical, but many people let lifestyle creep continue on for the entirety of their life.
But, is it inevitable?
I somewhat believe so. Obviously, we all work for a reason, and want to enjoy the money we make. With an increase in income, you might consider eating healthier foods, buying a better pair of work boots, or finally getting the gym membership you’ve always wanted. Nothing’s wrong with this at all.
However, if you do start spending more money, it needs to be calculated. An increase in income aligned with an increase in calculated spending leads to a more enjoyable life, yet still financially free.
The problem lies whenever people uncontrollably start blowing their hard earned money after raises or promotions. They feel invincible. They no longer follow a budget nor strive for financial goals, since they figure they never have to worry about money again.
The Almost Irreversible Consequences
Just think about it.
If you increase your income and spending at the same ratio, will you ever save? Will you ever be able to invest? What’s the point of your increase in income if it’s wiped out by your increase in spending?
Millennials have the mindset of “saving later”. The one of many words I’ve taken out of my vocabulary:
Later leads to NEVER.
Most millennials are completely delusional and think their salaries increase linearly throughout their lifetime. In fact, most of your income growth occurs in your 20s and 30s, then starts declining in your late 50s and early 60s. And unfortunately, spending trends upwards your entire life until your days are done.
So, what does this mean?
Well, if you’re aren’t saving and strategically investing your money in your 20s and 30s, the rest of your life will be plagued with financial trouble. Think of all the big ticket items that occur later in life: starting a family, buying a home, or paying for your child’s education. These things cost lots of money.
What’s even more worrisome about lifestyle creep is that it’s nearly impossible to reverse.
Think of the people you see every day whom “display” the image of having money. They most likely aren’t truly wealthy, and in fact, live paycheck to paycheck, maybe even in debt.
Ask them this, “If you ran out of money, and your only way out would be to sell your luxury cars, downsize your home, and get rid of your toys/gadgets, would you do it?”
Most wouldn’t. People succumbed heavily into lifestyle creep are too used to the lifestyle, and would rather go into debt just to keep up.
How to Manage Lifestyle Creep?
The best way to manage and mitigate lifestyle creep as much as possible is to pay yourself first.
Before you earned your increase in pay, I’m sure you followed a budget and developed a cost of living baseline. True wealth develops when you can maintain this baseline of expenses and save 100% of any future increase in income. Use this money to pay off debts, increase your emergency savings, and max out your 401K and Roth IRA.
If you aren’t following a budget and have received a pay raise, then I highly suggest following a budget ASAP. You’ll find yourself in trouble rather quickly, especially if unemployment or tough economic times hits you out of nowhere. By the time you get into your 30s, you’ll be in massive amounts of credit card debt, and probably still paying off your student loans. Not a good financial situation to be in at all.
I’ve thought about lifestyle creep for a week or two and developed three underlying signs that lifestyle creep is heavily upon you. Try to avoid doing the following:
1.) A Brand New Car!
Buying a brand new, especially luxury, car is one of the earliest signs of lifestyle creep for people in their 20s. You’ve got the raise and now you want to upgrade your perfectly working vehicle that’s purpose is to take you from point A to point B. Don’t throw this money down the drain if you don’t need to. If your vehicle works, don’t upgrade.
2.) Buying/Renting a Bigger/Nicer House/Condo/Apartmen
This typically doesn’t happen until people start a family or really start bringing in the dough. Your career begins to blossom and the amount of people in your household is going up. Time to go big or go home right? Wrong. Most people don’t realize that larger living areas typically comes with an increase in not only mortgage, but utilities, maintenance, taxes, and insurance. If it’s good enough, it’s good enough.
3.) Former Luxuries Becomes Your New Necessities
Purchasing former luxury items once you start making more money is something I certainly fight to control. Whether it’s shoes, eating out, clothes, drinking, etc. I try to be as mindful of this as possible.
There is no limits to the things you want. Purchasing your former luxuries over time and making them your new necessities eats up large sums of money long term. No matter what you buy, that feeling will never go away, and you’ll never be able to keep up. Fight the urge and live simplistically.
Hope you all enjoyed this week’s blog post! If you’ve missed Part II of Perfecting Your LinkedIn blog post, click here. As always, don’t forget to like, comment, share, or subscribe!
“The time making money should be greater than the time you are spending money.”
Book of the Month: “The Compound Effect: Jumpstart Your Income, Your Life, Your Success” by Darren Hardy