Are you making more money this year than you made last year? I hope so. And I also hope you earn more money next year, too.
How much are you spending? If you’re a frugal enough person, I hope you’re spending less than last year, even if you’re earning more. That is, if there is still anywhere to make improvements in your spending habits.
Defining Lifestyle Creep
In reality, most of us spend more as we make more, which is defined as lifestyle creep. Lifestyle creep is where things that were once merely “wants” become wants that you go ahead and buy or even become perceived “needs” over time as our income increases.
Lifestyle Creep By The Numbers
Did you know that people who make $50,000-$75,000 a year have less credit card debt ($8,900), on average, than people who make more than $75,000 a year ($9,200). People who make $35,000-$50,000 a year have much less debt on average than either of those groups ($6,700).
You might be inclined to think the reason people who have less income have less credit card debt is that they have lower credit card limits. That may be true.
In reality, though, generally speaking, people who have less income spend less money. Why? Because they have less money.
Why would you have more credit card debt making $80,000 a year than making $40,000 a year? There might be some individual circumstances where increasing spending was an unfortunate necessity for a short while. But my guess is that, on average, where spending increases with income, lifestyle creep plays a major role.
I’m Implicated Here, Too
I am fortunate that my income has increased almost every year since I entered the professional workforce full-time around a decade ago. And I have unfortunately given in to lifestyle creep at times.
For example, I bought three new vehicles in six years or so before wising up to the reality that used cars are a much better deal for my dollars. Mrs. Thrifty and I also bought a house twice the size of the one we sold (before selling that larger house and downsizing again to where we are now).
Why Lifestyle Creep Matters
I can guarantee you from experience that lifestyle creep will be one of the primary factors that keep you from achieving financial freedom if you entertain its beckoning.
Lifestyle creep increases your monthly costs, which decreases the amount of money you would otherwise have available now for investing now and increases the amount needed to achieve the same financial results when invested at a later time.
You may find yourself experiencing lifestyle creep regarding major or minor purchases. Of course, major purchases like cars, which happen to be depreciating assets, can do more damage to your financial health more quickly than small purchases do.
But a series of smaller opulent or otherwise unnecessary purchases can also add up. Being Thrifty Enough to avoid lifestyle creep requires maintaining a mentality that it’s not ok to spend significant amounts of money on “wants” just because there is more money available for them.
The Lie of Lifestyle Creep
Lifestyle creep gives credence to the false premise that your needs have fundamentally changed because your income has changed. Regardless of how much income you’re making, I would encourage you to keep a firm grasp on your expenses.
3 Easy Ways to Nip Lifestyle Creep in the Bud(get)
The good news is, if you’re Thrifty Enough to live them out, there are a number of practical and relatively easy and painless ways to avoid lifestyle creep.
- First, when you get a raise or your income otherwise increases, keep living on an amount of money very similar to the amount you lived on before.
It’s alright to have a celebration meal at a restaurant or to buy a new pair of socks every now and then.
But financial freedom comes from saving and investing more than you spend over a period of time unless you already have so much money that it isn’t necessary to save or invest anymore.
Lifestyle creep won’t get you to that place as fast as you would if you continue to live within the means you already had. And the mindset that gives in to lifestyle creep might keep you from achieving financial independence at all.
Why not take some of that extra money you’re making and invest more in something like a 401k or IRA?
- Second, find inexpensive ways to enjoy the hobbies you already have.
Most people spend a lot of their “extra” money on recreation. The person who enjoys fishing buys a john boat when shore fishing used to do, or he or she buys a shiny bass boat when that john boat just won’t do anymore.
After all, rowing is tough and merely trolling around doesn’t put much breeze in your face. And so on, regardless of the hobby.
The reality is you don’t need fancy equipment for most hobbies. My wife and I enjoy playing tennis, and we have all of about $20 in all our equipment.
Sure, they make $200 racquets. And we could get nice bags and matching outfits and headbands or something similarly unnecessary and be $1,000 in on unnecessary tennis equipment pretty quick.
But we’re not that good at tennis, so why should we spend 50 times as much money as we would need to be able to go and play a time or two a year?
- Third (and this point could summarize the entire post), avoid unnecessarily spending money on things you don’t need.
Find inexpensive things you enjoy doing and do them far more often than you do expensive things. For example, what sorts of recreation could you enjoy for free? What sorts of things could you enjoy just as much to look at as to buy?
Our last place had a pond, and my wife and I both love to fish and kayak. It sure was convenient to have our very own pond within walking distance.
How much did we pay for the value of that pond, though? My guess is the amount would have covered close to a lifetime of trips to conservation lakes in the area.
I’m not saying not to buy a place with a pond. Rather, don’t spend income in excess of your “needs” on things that don’t bring you either significant value or similar return on investment.
Is it really cool to be able to hike on your own land? Of course it is, and maybe the land will appreciate handsomely over time.
But unless it is part of your investment plan, I would encourage you to check out that state park in the area instead. The view there is either cheap or free, and there are no property taxes for you to pay or lawn that you have to mow.
As your income increases over time, you will have to make conscious, tangible decisions to make it a priority to avoid lifestyle creep. Maybe your neighbor has a new car or your relative has a new house, and you’d like to be able to do the same.
If you’re like me, though, and want to achieve financial independence as soon as possible, you’ll do well to keep living the way you are. Or maybe to look for even more ways to cut costs as your income rises.
Here are some questions to ponder and discuss below:
Do you struggle with lifestyle creep?
What are some effective ways you’ve found to combat or even overcome lifestyle creep?
The Money Mix is a resource dedicated to money and personal finance. Our mission is to create a healthy conversation about strategies to make and save money, build wealth and how to achieve life-changing goals through taking control of your life.