Lifestyle creep, also known as lifestyle inflation, is a sneaky financial phenomenon that can erode your wealth and financial stability over time. It occurs when your spending gradually increases as your income grows (or costs go down), leading to a seemingly perpetual cycle of upgrading your lifestyle. For example, as you earn more, you may want to live in a larger house, upgrade your belongings (e.g. car, clothes, bags) to luxury brands. Without even knowing it, you may find that this quickly cancels out all the increases in your income.

While it's natural to want to enjoy the fruits of your labor, failing to manage lifestyle creep can hinder your long-term financial goals. In this article, we will explore strategies to avoid lifestyle creep and maintain a healthy financial balance.

💡 1. Track Your Spending

Start by tracking your monthly expenses and categorizing them, including fixed costs like rent or mortgage, utilities, groceries, and discretionary spending on entertainment and dining out. For example, you can simply use apps like Empower Personal Dashboard™ or Mint to link all your accounts all in one place.

💡 2. Regularly Review Your Expenses

Periodically review your expenses to identify areas where lifestyle creep may be sneaking in.

In particular, look for recurring expenses (e.g. subscriptions) that you no longer value or use, and consider cutting them from your budget.

When reviewing your discretionary spending items, reflect on whether it was worth it. Did it bring you the satisfaction you were looking for? Or was it a spending that you regret now? The key is to be mindful of what you are spending your money on, so that you know where to continue to spend money on to improve the quality of your life, and where to curb spending to avoid wasting your money. For example, you may have discovered that getting those paint supplies was well worth the money since it has allowed you to pick up your favorite old hobby of painting again, allowing to relax outside of work. However, you regret spending $100 on a pair of new sneakers that you only wore once in the past month.

💡 3. Increase Savings and Investments As Your Salary Increases

When you get a raise, see if you can increase the amount you save and invest as well. Consider setting up automatic transfers from your checking account to your savings or investment accounts on payday. This "pay yourself first" mentality ensures that you prioritize saving and investing before allocating money to discretionary spending. Over time, this strategy helps you build wealth and prevents lifestyle inflation from eating into your financial progress.

💡 4. Set a "Wants" Budget

It's essential to differentiate between needs and wants to avoid lifestyle inflation. Needs include basic necessities such as housing, food, healthcare, and transportation. Wants encompass non-essential items like dining out frequently, buying designer clothes, or upgrading to a luxury car.

Reflect on what wants you have that bring you the most joy and allocate budget to spend on this each month. Sticking to this budget will not only help to satiate your wants, but also makes sure you do not detract from your financial goals.

💡5. Avoid Impulse Purchases

Apart from having a "wants" budget, there are strategies you can use to avoid impulse purchases that wastes your money:

"Out of Sight, Out of Mind".

Unsubscribe from all marketing texts and emails from your favorite retailers, so that you avoid falling pray into sales and limited-time deals, and being enticed to buy in general.

Pause before actually making a purchase and ask yourself:

"Why do I want to purchase this item?"

"What do I think it will make me feel when I get this?"

Often times, you will find that the reason you started to online shop is because you were not feeling so great. You may have been bored, depressed or simply stressed out, and you thought that the purchase would wipe away those feelings. Ask yourself,

"Is there anything else I could do to help ease my feelings and bring joy to the present moment?" For example, consider going out and taking a walk, put on some upbeat music or read a book. Whatever works for you.

Set a "cool down" period.

To avoid impulse online shopping, put the item in your shopping cart and wait for a set period (e.g. a week). If you still find yourself thinking about it after the period and think it truly adds value to your life, go ahead and get it!

Have a Shopping List.

Before going shopping, write down a list of things you want to buy and only stick to buying those.

💡 6. Set Financial Goals & Track Progress

Having clear financial goals is a powerful motivator to resist lifestyle creep. Whether it's saving for retirement, buying a home, or starting a family, define your financial objectives and establish a timeline for achieving them. Break these goals into smaller, actionable steps, and track your progress regularly. When you have a purpose for your money, you're less likely to fritter it away on unnecessary expenses.

Remember, you can also use Empower Personal Dashboard™ or Mint to track your net worth changes and goes up over time. This can keep you motivated to keep saving towards your financial goals!

Conclusion

Avoiding lifestyle creep is a crucial aspect of maintaining financial discipline and achieving your long-term financial goals. By creating a budget, regularly reviewing your expenses, automating savings and investments, setting clear goals, and taking control of discretionary spending, you can build a secure financial future while still enjoying the present. Remember that financial discipline is a journey, and small, consistent steps can lead to significant financial success over time.

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