Last Updated on May 23, 2022 by Sophie
Lifestyle creep is a pretty common (and hard to break) pattern of spending whereby, as people’s salary increase and they therefore have more disposable income, they are more likely to spend more on discretionary and lifestyle expenses. Here are some common examples of lifestyle creep, as well as how to prevent lifestyle creep!
Lifestyle creep is also commonly referred to as lifestyle inflation. Lifestyle creep typically happens after someone gets a salary raise, develops a money-making side hustle, or pays off a debt.
What is lifestyle creep?
Lifestyle creep is just as insidious as it sounds. For example, when your salary increases, you may end up moving to a more expensive apartment and spending more money on things that aren’t necessities, such as more luxurious clothing, dinners, or vacations. This all ‘creeps’ up on you, and before you know it, you have way too many clothes, your apartment costs too much, and you’re in credit card debt.
One of the key hallmarks of lifestyle creep is that, as discretionary income rises, so does the thought that things that were once considered luxuries become considered to be necessities. It’s the beginning of the belief that things that were once considered non-essential have become essential and it’s a ‘right’ to have these things, as opposed to a privilege.
And, one of the most important things to note about lifestyle creep is that it doesn’t just affect the here and now but will also affect how much you put away into savings, your emergency fund, your retirement fund, and it is also one of the main barriers to building long term wealth. A prime symptom of lifestyle creep is that, even if your earnings have gone up, your savings account has stayed the same.
If your salary decreases in the future, then lifestyle creep can also be an issue as you may continue to live beyond your means, believing that all of the things that are luxuries are ‘necessities’ to your life and ‘needs’ rather than ‘wants’.
Lifestyle inflation can affect anyone, but there are some people that are more susceptible than others. You don’t have to earn six figures a year to experience lifestyle creep. Lifestyle creep is most prevalent in two demographics: those nearing retirement age, and young savers.
For near retirees, they are likely at the peak of their financial careers and have often paid off a lot of the ‘big expenses’ (i.e. child costs and mortgages). For young savers, who tend to be in their mid to late 20s to early 30s, they may have their first well-paying job, and are often not as well versed in managing finances or a budget.
Lifestyle creep examples
Apartment/ housing cost
For me personally, the largest lifestyle creep expense I’ve ever experienced was my living situation. As my income increased (and therefore so did my disposable income), I decided that I wanted to live on my own in an apartment. Living alone doesn’t just mean a higher rent, but also that there’s no one to split bills with, no one to split the TV license, local housing taxes, and a myriad of other expenses.
Food and drink
There’s a worn out joke among millennials and younger generations that ‘if we just stopped buying coffee,’ then we would be able to afford a mortgage. While this is definitely untrue, there is an element of truth to the fact that extra food and drinks are a common sign of lifestyle creep.
For example, rather than only going out for coffee occasionally, someone might choose to buy coffee out on a daily basis. Or, rather than often opting to choose cheaper options at a restaurant, they might continually opt to select more expensive options.
For me, personally, I’ve found that I will find myself ordering takeout more often than I should, even when the healthier and cheaper option would be to cook something for myself with things I’ve purchased from the grocery store!
Clothing expenses
For some people, lifestyle creep in terms of clothing can be buying more expensive clothing or replacing clothing more often than is necessary (the latter being particularly bad for the environment, as well as your wallet). However, lifestyle creep doesn’t always manifest in buying more expensive clothing. Instead, it can manifest in buying a bigger volume of clothing (and way more than you personally need).
Travelling expenses
There are a number of ways that lifestyle creep can manifest when it comes to travel expenses. One of the biggest, is when people opt to travel premium economy rather than regular economy, rent a bigger car than is necessary, or choose a more expensive hotel when a cheaper one would have sufficed.
How to Prevent Lifestyle Creep
Keep an eye on your spending
One of the most important ways to keep a lid on lifestyle inflation is by monitoring what you’re spending on a day to day basis. You can go old school and keep a spreadsheet (thus allowing you to see what non-necessary luxuries you’re spending too much on and weed them out) or, alternatively, there are plenty of budgeting apps that will help track what you spend on a monthly basis.
Consider your purchases/ delay purchases
If you have an earnings increase, in some form or another, the first thing you might consider is upgrading something, such as a car or phone contract. However, don’t jump the gun and only consider if the upgrade is really something that’s worth it. Take at least a few days to think over before taking any big financial decision.
Have a monthly budget
The main key in fighting back against lifestyle creep is in learning how to properly budget and manage your finances. If you are on a fixed salary income, then this should be easier to manage. Set a realistic budget, and stick to it.
If you are a freelancer, and thus your money coming in on a monthly basis is always changing, then it’s harder to set a monthly budget. I am personally in the latter category as I am self employed. What I tend to do is try and live within a budget of my lowest earning months, as this way I’ll save more, and stick to a budget I can actually afford.
Reduce non necessary expenses
In the days of the online world, it’s easy to start accumulating subscriptions to things we don’t really need/ want/ use. Go through all of your monthly direct debit payments and weed out things like subscriptions to services you don’t ever use or need.
Set long(er) term goals
Think about what you want financially. Do you ideally want six months of expenses in savings? Would you like to increase your retirement fund? Do you have a big expense event (vacation/ wedding/ etc) coming up in the next few years? If so, work out how much it will cost and start to set aside an appropriate amount of money each month so that you can reach those longer term goals.
Set up automatic payments
Though with living in our day and age comes with many temptations (such as being able to buy almost anything with the tap of a button), there are some benefits when it comes to building up savings accounts.
For example, most banks will allow you to set up automatic payments each month. Therefore, when your salary comes in, a part of it can be transferred into a savings account, without you having to do anything at all.