Follow these tips to avoid lifestyle changes and ensure you’re living within your means. As your income grows, keep checking expenses and costs to help set you up for financial success now and in the future.
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What is Lifestyle Creep?
Lifestyle creep, also known as lifestyle inflation, is the situation in which individuals and families experience increased expenses due to an increase in salary. So if you’ve recently received a promotion, bonus, or started a new job with higher pay, you might find yourself, consciously or unconsciously, spending more on material items. This increased spending can stretch your budget more than recommended to maintain adequate savings and reach your long-term goals.
Of course, advancing in your career is a positive step in your life goals. Just be sure to approach the salary hike with a smart financial plan.
How do you know if you’re having a lifestyle creep?
Way of life creep is so named because it can sneak up on you. You may find yourself spending more, whether it’s little splurges like going out to eat more often or buying more luxuries like fancy olive oils, or bigger expenses like a second car or a holiday home. Here are some of the signs that you are spending more than you should.
• Your income has increased, but you have not increased your savings in the same way
• You became too comfortable with your financial situation and “officially” stopped budgeting
• You no longer track your purchases or account balances like you used to
• You find yourself becoming nonchalant about the prices of the goods and services you really want (“I have the money, why not?”)
• You notice that you are suddenly going into debt even though you are collecting a larger paycheck (a telltale sign of overspending)
Prevent lifestyle creep
To make sure you don’t fall victim to a lifestyle change, you must first start by assessing your expenses. Figure out where your money is going, whether it’s a one-time expense or a recurring payment, and track it.
Once you’ve tracked your expenses, make a budget (or dust off the old one) and stick to it. You can also review your budget each month to make sure you stay within your spending means. It may also be useful, if you have the previous documents, to review your budget from 3 to 5 years ago. This exercise can help you understand where you are with your finances and help you refocus on your financial goals.
Also, don’t forget to consider emergency funds in case you need access to cash for an unforeseen financial situation. Check your savings account balances and give them a deposit boost if needed.
Fixing the lifestyle creep
It’s not too late to buck the lifestyle trend if you find yourself overspending. Once you’ve checked your weekly and monthly expenses, find ways to reduce expenses.
Automatic purchases: Are you paying for a monthly subscription that you don’t use or need? Consider canceling it. We live in the age of the subscription service model, so check out everything from streaming services to monthly coffee deliveries and auto-recharge purchases.
Luxury Grocery Lists: Have you noticed that you say “yes” to any grocery shopping impulse? Are you still immersed in a COVID-era baking or cooking hobby that adds expensive ingredients to your pantry? Consider planning your meals to avoid waste and reduce your recipes for exotic ingredients.
Re-emergence excitement: Although the pandemic is not over, many are making lifestyle changes that allow for more socializing and activities outside the home. If you’re one of those people, carefully track your spending on entertainment, dining, and activity to make sure you’re balancing fun and financial savvy.
Another way to combat lifestyle drift is to increase your income, but this is a short-term fix compared to the longer-term benefits of right-sizing your budget. To earn a little extra income, consider selling unwanted and unused clothing or items online or at a thrift store.
A popular option is to go freelance or start a second job that uses your best skills or interests to earn money. Before getting into a side hustle, check the possible tax implications for side income.
Prepare for financial success
Improving your lifestyle due to positive changes in your finances is not negative, as long as you consider your long-term financial goals and are aware of your complete financial situation. If you’ve used credit cards or other loan options to pay for recent expenses, immediately re-evaluate your expenses and develop a repayment plan. When you’re budgeting, don’t forget to take into account accrued interest on credit cards or loans.
How to Tackle a Lifestyle Level Up
An alternative to succumbing to lifestyle creep is to carefully plan your discretionary purchases. It’s always beneficial to set both short-term and long-term financial goals, even if the goal is simply to “enhance” your day-to-day experiences.
Setting realistic financial goals can be the engine you need to improve and achieve financial success, without falling victim to a lifestyle change. And, if something like a vacation home or a golden deli spread is really important to you, it will be just as important to create a budget and plan to achieve that goal without sacrificing your financial stability.
Abby Wendel, president of consumer banking at UMB.