Public enemy number one for financial independence and early retirement
What is lifestyle creep?
Lifestyle creep is an increase in monthly spending due to problematic spending habits. This rising cost of living is the result of people seeking better living conditions. Lifestyle creep takes on two major forms. The first is gradual and hard to notice. Paying others to do chores, dining at nicer restaurants, etc. The second is lumpy and a significant step up. This occurs when you get a new house, apartment, or car that comes with a much larger monthly carrying cost.
Lifestyle creep is also known as lifestyle inflation. The conscious or subconscious decision to spend more has two common catalysts. The first is when you start to earn more money. This can be from a raise, a new job, or even a significant bonus. The mindset, “now I can afford it” seduces you to upgrade your lifestyle.
The second catalyst is when people in your social circles spend more money in visible ways. When you see friends, family, and neighbors spending more money. You can feel pressured to do the same. Jealousy is a hardwired human emotion and can make you do dumb things. The flashy and visible luxury items are the easiest to see and the ones that will drive you the craziest. New houses, cars, clothes, jewelry, and expensive trips.
Whatever you do, don’t try and keep up with the “Joneses.” That’s a fast track to being house poor and unhappy.
Lifestyle creep definition
“An unbalanced increase in monthly spending as you attempt to improve the comfort of life”Simple Money Habits
Unbalanced is the operative word. Thoughtful spending across your expense categories aligns your spending with what’s important. You focus on spending money in areas of your life that give you the most value. You also spend aware of your future financial goals.
You’ll find many other definitions that reference spending discretionary income. Luxury goods that become necessities. An increase in your standard of living. It bits and pieces it’s kind of true and it makes some sense.
If you practice simple money habits you’ll understand this rhetoric is crazy town. All your income has a purpose. Discretionary income, what in the hell is that! New luxuries become your new necessities! Dear Lord, did you go totally soft? You don’t need to fly first class. Eating non-organic foods will not kill you. Cut your own grass. Clean your own bathrooms. You’ll be fine. Standard of living? Oh economists, they directly relate spending money with a standard of living. Visible head shake. What about spending less money, becoming financially independent, and living an intentional life. That sounds like a better standard of living to me.
Signs of lifestyle creep
“Lifestyle creep is an evil spirit seeking to create chaos in your financial life.”Simple Money Habits
Forgetting to sweat the small stuff
Lifestyle creep can start small with everyday purchase decisions.
- A few more streaming apps cause they’re only $9.99 a month
- A daily latte or some Starbucks drink with an insane name and 100 syllables
- Faster internet cause you’re using 3 devices at the same time 24/7
- Takeout for dinner… again. You can’t be bothered with cooking. You’re busy binge-watching Netflix… again
- Tacos from your favorite take-out place. Delicious. You have to pair that with a nice craft beer or a nice bottle of California Fume Blanc
Then the evil evolves and creeps into higher ticket items
- Your wardrobe is trash. Better upgrade and get a whole new wardrobe. It’s been a while since you spent a few thousand bucks on new clothes. Pop some tags!
- Do you know what would be nice? Not cleaning your house. Hire a cleaning service to literally do your dirty work. Genius.
- The crack in your cell phone is annoying you too much, time for a new phone.
- You’re going stir crazy at work, time for a few weekend getaways.
- Ugh, your laptop is slow, time for a new MacBook Pro.
- You’ve been spending a lot of time at home. There’s a literal ass groove in your couch, time for a new couch.
This type of spending accelerates when you start thinking you really deserve these things. The nonessential items look and feel like essential items. Slippery slope we’re driving down now. Speaking of driving, you deserve a new car.
A New Car: The smoking gun of lifestyle creep
Cars are still ingrained in the American culture. The average household has 1.88 cars. Only 8.6% of Americans don’t have access to a car. Elon Musk and Telsa dominate Twitter and the news feed on a daily basis.
Buying a brand new luxury car is one of the easiest and best ways to say, “Hey look at how much money I can spend.” I’m still looking for the data, but I’d be willing to bet most people who own fancy cars have money problems. The millionaire that lives next door probably drives a Toyota corolla or Subaru.
A New Boat: You’ve gone and lost your damn mind
- “A boat is a hole in the water you throw money into.”
- “The two happiest days in a sailor’s life are the day he buys a boat and the day he sells it.”
From Boston Whaler to Super Yacht, buying a new boat is like shooting a flare gun that says, “Lifestyle Creep Baby!”
A New House or Luxury Apartment: The ultimate lifestyle creep expense
- Rule number 76. No excuses. Play like a champion.
- Rule number 5. You’re an idiot.
- -Wedding Crashers
Rule #5 feels like a good fit for this one. The desire to buy a new house or upgrade your city apartment can be caused by both lifestyle creep catalysts. You making more money, or people in your life spending more money.
Upgrading your dwelling is a three-part blow to your finances. First is the upfront cost. An apartment will cost you first and last month’s rent plus a security deposit. A house will cost you a down payment on your mortgage. That’s a lot of cash. The second is the higher monthly recurring cost. Higher rent or a higher mortgage payment. The third is the cost to maintain your new apartment or house. Higher utilities, taxes, insurance, maintenance, etc.
If you’re feeling the itch to get a new place. Take a deep breath, do the math, and make sure you fully understand the commitment. And if you’re buying a house, there’s also a time commitment. When shit breaks around the house, you’re the one who needs to fix it!!
The spirit of lifestyle creep: Point of clarification
The idea of lifestyle creep focuses on people spending more money on non-essential categories or luxury goods. And spending money on higher-end items within core expenses like housing, food, and transportation. These are the big three expense categories for most people. This idea does not describe low-income earners who increase spending to get out of the poverty line and or move to safer and cleaner living situations.
Prevent lifestyle creep
The good news is that you can stop lifestyle creep from happening. The bad news is you may not want to. Spending money on cool stuff is so fun! Sure, but is it worth it. That’s the big question.
Some people are lucky to develop frugal habits early in life. This can be out of necessity due to low income and no assets. Other times people simply don’t like spending a lot of money and feel safer when they save. Lifestyle creep is a low-risk issue for the habitually frugal.
I’m a minimalist in many ways. However, I’ve been seduced by the desire to splurge. When you’re young and your income increases, the temptation runs high. Here’s how I prevented lifestyle creep in my life.
Financial goals and planning
Set Goals. You prevent lifestyle creep with goals. A good financial plan is very effective at preventing lifestyle creep. For me, financial independence was the priority. So all the urges to spend money on the finer things got squashed. They did not align with my goals so I said no thank you.
The urge to get a nicer apartment is nothing compared to the dream of living every day like Saturday. Daydreaming of living my life in a state of perpetual summer vacation. That image in my mind helped keep me modest with my spending. First-class tickets? Nah, I’d rather get to financial independence faster. I can afford a bigger house with more stuff, should I do it? Nah, I’d rather get to financial independence faster and with less stress.
Write down all your financial goals. You’ll realize all the things you need money for to live a life by design. Seeing that list will help keep you on track when shiny new toys show up in your Instagram feed.
The second part of your plan is to prevent lifestyle creep.
Plan for success
““Plan for success so success doesn’t lead to failure. “”Simple Money Habits
Your income plan to prevent lifestyle creep:
- What will you do when you get a raise?
- What will you do when you get your bonus?
- What will you do when you get a really big bonus?
- What will you do when an unexpected windfall brings money into your life?
My personal answers to these questions:
- Plan to spend 50% of the raise. Increase my automated savings to direct deposit and invest the 50% raise.
- Save 100% of regular bonuses. No question. Bonuses are for your future.
- Save 90% of the really big bonus. Something excited happened at work to make this happen. Celebrate your accomplishment. Spend 10% and enjoy it guilt-free.
- Windfalls are gifts to the high achiever. Save 100% of the windfall and get that windfall invested ASAP. Windfalls are the universe telling you that the future is changing for the better.
Create spending categories. Track your expenses. Each month review the category and ask yourself, did this spending make me happy. Am I glad I spent this much on this category? Decide to spend more or less depending on the value you got.
Bring awareness to your expenses. For the big-ticket spending. Loop back months later and ask yourself, are you still happy with spending that big amount on that thing or that experience.
Thoughtful spending can have a material impact on your well-being and happiness. Thoughtful spending can also reverse any poor decisions over time.
Prevent lifestyle by setting goals, planning for success, tracking your expenses, and bringing awareness to your spending habits.
Avoiding lifestyle creep: More tricks and tips
- Direct deposit raises and bonuses into your investing account. Never see the money hit your checking account so you’re not tempted to spend any of it.
- Make a dream fund. Save and invest money that you will spend on your dreams. Write down a list of things you desire. That’s your dream fund list.
- Create a pressure value. Spend money on a few crazy things from time to time. Go above and beyond your normal category spending. Do it thoughtfully. You’ll notice it’s really not worth it. It helps to reduce the desire for future splurges.
- Schedule time to clear your head and say out loud what you’re grateful for. I know the practice gratitude recommendation feels overplayed. But it works so damn well. If you feel rich, abundant, and grateful for what you have, you won’t fall victim to lifestyle creep.
- Take a break from social media. Your friends’ life on Instagram is not their real life. Ignore the urge to create a social media-friendly lifestyle. That’s chalked full of lifestyle creep.
Why is Lifestyle Creep Bad?
Lifestyle creep makes retirement more expensive
Circling back to the headline of this post. Lifestyle creep is public enemy #1 for financial independence. When you raise your monthly cost of living, you need to make more, invest more and have a larger portfolio to reach financial freedom. Lifestyle creep can add years maybe decades to your working life.
Set goals. Plan for success. Track your spending. Be mindful of whether your spending makes you happy or not. Repeat until it’s a habit. Good habits will prevent, slow, and reverse lifestyle creep. Stay focused on the number one prize, financial independence. We need you financially free so you can do meaningful work and make the world a better place.