How to Hedge the Dangers of Lifestyle Creep
When I was in my twenties I had an insanely lucky opportunity to live in a very large home. My late husband and I moved from an 800-square foot place into a 90-year old 5 bed/3-bath 3,000-square foot house in a historic district. Seriously ridiculous and stupidly lucky. Hashtag blessed, all the gratitude.
Anyway, when we moved in my mom came to town to help. She, like everyone who saw this home, wandered around starstruck at the space and storage. “Your stuff will grow to fill the space,” she warned. And boy oh boy was she right. When I moved out after my late husband passed, I sold off more stuff than I kept, and I couldn’t help wondering where it had all come from.
Most of us grow to our space. We fill up the margins. And our money is no exception.
Ever notice that when you get a pay raise or pay off a debt, that extra money seems to disappear? You may be experiencing what’s called lifestyle creep.
Lifestyle creep is the common phenomenon where an increase in income leads to an increase in spending. And the increased spending creates a need for more income. It’s a hamster wheel.
With access to more money, you can spend more money, and overall that’s great - that is part of the goal of earning more. But it’s just part of it.
With each raise to income, the goal should be to spend some now and save some for later. But often we give in to the temptation to ignore that second part, resulting in more expenses and less wealth.
Need to find balance to keep your margin from disappearing and make progress on building wealth? I got you.
How to steer clear of lifestyle creep to keep your money balanced:
Shift Your Mindset
Think of all your net income in percentages and aim to allocate about 50% to needs, 20% saving, and 30% to wants - this includes raises and windfalls.
Pay Yourself First
If you have the ability to split your paycheck through your employer, this can be a great hack for you. Using the 20% guideline, automatically save that percentage of each paycheck in a separate savings account, depositing the rest in a spending account. This practice allows you to see only what you’ve decided to spend and sock away what you’ve decided to save.
Split Before You Spend
Using your remainder for spending, decide how you’ll use that before spending, rather than deciding after it’s gone. If you’re managing money with a partner, discuss the plan before hitting the checkout.
Acknowledge & Celebrate
If you’ve earned a raise or eliminated a debt, celebrate that accomplishment! Even if you’re not feeling like a Kardashian just yet, you have made a move in the direction of increasing your wealth! Keep going — but don’t let that moment of celebration slip by unacknowledged.
Practice
Life happens. And best laid plans don’t always pan out. Recognize what’s in your control and what’s not. Control what you can control and don’t beat yourself up about what you can’t.
Here’s how these principles can be put to work practically.
If you receive a $5000 annual raise at work (after taxes) aim for…
Saving $1000 more ($83/month) - set up your payroll check to deposit that amount straight into your high-yield savings account or brokerage account, or divided among both, whichever way you’re saving.
Spending $2500 more on needs ($208/month) - add that health subscription you’ve been needing or level up your grocery budget for the organic produce
Spending $1500 more on wants ($125/month) - buy those shoes one month and that kitchen gadget the next! Discuss the plan with your partner and get on the same page before that package arrives.
Navigating the trap of lifestyle creep requires a mindful approach. As someone who once found herself in a sprawling home that seemed to invite endless possessions, I understand the subtle danger of growing into our space, both physically and financially.
Make a plan. Shift your mindset to decide & allocate percentages wisely, pay yourself first to enforce disciplined saving, and don't forget to acknowledge and celebrate your financial milestones. By putting these principles into practice, you can ensure that every raise, bonus, and financial accomplishment contributes not just to your immediate needs and wants but also to building a solid foundation for future financial security. Cheers to financial balance and mindful living!