Lifestyle Creep – What it is and how to avoid it

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Lifestyle creep? It sounds awful, and it is. Sadly, it happens to many of us just as we think we’re getting it all together. No matter how frugal we are, there is always the temptation, when a raise or other unexpected windfall occurs, to spend it. After all, we tell ourselves, we can now afford those things we have been avoiding.

Lifestyle creep ... it's so easy for that pay raise to disappear in lifestyle upgrades. Some might improve your quality of life, but do they all?

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And so, after the pay raise, the family moves from a small apartment to a nice house, trades in the junker for the new car and … suddenly the pay raise disappears.

 

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Now we find that our lifestyle has crept beyond our needs. Perhaps it has even crept beyond our means. This is called lifestyle creep and, to be truthful, it can happen to all of us.

When we get a raise, most of us end up upgrading our lives in little ways. It’s so very difficult not to. We get the better cable package or cell phone plan. Maybe we upgrade our car, hire a weekly housecleaning service, or take nicer vacations.  Perhaps we simply buy an extra few magazines or decide to see a hairdresser a bit more often.  This can be detrimental to your financial future.

Don’t believe that lifestyle creep can happen to anyone? If you think that the problem really is that you’re not making enough money, check out the savings problems a couple earning $500K have.

If you sense that you are allowing lifestyle creep to take over, here are a few ways to fight back.

Drop one luxury and put the money toward your debt or savings

Is that magazine subscription really worth it, or are you three issues behind because you won’t make the time to read? Was that ultimate cable package perhaps a bit more than you needed? It’s so very easy to say “Well, it’s just a $50 a month. Surely we can afford that now!”

Obviously you will need to spend some time examining your new expenses to decide what is a luxury and what can be eliminated.

Track your expenses

There are many ways to do this. You can use your debit card for everything and use your bank’s online tools to see where your money is going. Most banks now have phone apps that will track and organize all of your bank account transactions automatically.

There are also several websites, such as Mint.com, that perform a similar function. You can also limit yourself to paying with cash. There is nothing quite like cash in hand, counting it out and handing it over, to make you aware of how much you are actually spending. We did it for years.

Find a system that works for you.

Are you getting good value for your money?

Is the $200 spent each month on restaurant meals worth it? Is the $150 per month for fancy coffee worth it? It’s rather amazing how quickly both of those can add up.

One of my favourite frugal authors, Amy Dacyzyn, called this the WOW factor. For example, a good-quality shirt and a family dinner at a restaurant might cost the same amount. Let’s say $50. The shirt might be worn a hundred times or more, so the WOW factor is 50/100 or $0.50 per wear. The meal lasts an hour and is forgotten a few days later. The WOW factor of the meal is $50. Is the meal worth a hundred times more than a long-lasting shirt? Probably not – but we’ll hum and haw about the shirt and think nothing of the meal.

As an aside – the WOW factor of a home-cooked meal, with the family around the table every night, is fabulous for children and for your family relationships in general. And since most people discard high quality clothes long before they are worn out, optimize your clothing WOW factor by purchasing at second hand and consignment stores.

Optimize the WOW factor of your purchases and be sure to eliminate those things which do not add meaningful value to your life but have a high dollar value.

Track your savings

This reminds me of a joke in which a spendthrift wife, coming home from a big shopping trip, says to her husband, “Well, you shouldn’t be angry at me for spending so much money! You should be happy at all the money I’ve saved!”

The best way to save is to simple not spend any. When I see sales urging me to save 50% on items that I really don’t need, I remind myself that I can save 100% by not buying the items at all. And sorry, unless it’s something that you’ve been regularly paying for, you can’t count the $500 worth of items you put back on the shelf at Winners. I only wish we could.

However, there are some savings you can track. If you have been dining out for lunch every weekday, and you start carrying a bag lunch, you can legitimately claim that money as savings.

If you organize your shopping and errands so that you spend 25% less gasoline than you did last month, you have again saved.

Track these so that you can start to see clear progress.

Create a budget

Armed with your expenses and savings numbers, create a sensible budget that you can follow. Revisit the budget each month and determine if it still makes sense. Although the new year is a great time to start a new, updated budget, you can really do it anytime.

Compare your lifestyle and expenses to a year ago

Then do the same, only go back five years this time. How have things changed? Are the upgrades to your life worth the expense?

How would your life look in 10, 20, or even 30 years from now if you saved that money instead?

Sometimes they really are worth it. When we moved from our cabin in the woods to a large old house in a little village, we knew some expenses would increase. The trade-off, though, was definitely worthwhile since black mold and isolation were causing both health and relationship problems.

Make a list of how lifestyle creep will affect you in the long-term

It’s easy to view life with a short-term mindset. But that leads to making decisions that are beneficial in the short-term. These decisions are often poor in the long-term.

Make a list of the negative things that could happen if you don’t cut back and save more aggressively.

Make a list of your debts

Put them all down on paper so you can view them all at once. Are you utilizing your income wisely? Would some of the money you’re spending be better spent on reducing your debts?

How will your future be affected?

Intelligently apply the money you’ve recaptured

Ideally, any available funds will be put on debt or savings. If you’re applying money toward your debt, start with the highest interest debt. If you’re saving money, ensure you’re putting it in the best possible place.

Lifestyle creep can be difficult to recognize. A brand new bass boat in the driveway is easy to spot, but going out to dinner a few more times each month is less obvious. It is also very easy to justify a new car or an upgraded wardrobe when if you have a new status to maintain.

The problem, though, is that lifestyle creep can create challenging financial circumstances in the future. Instead of putting extra income into an increased standard of living, so long as the basics are being met, put it towards debts or education so that it has long-term benefits for your life.

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Lifestyle creep ... it's so easy for that pay raise to disappear in lifestyle upgrades. Some might improve your quality of life, but do they all?

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