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How to Avoid Lifestyle Creep

“Go ahead and treat yourself…you deserve it!” 

How often have you heard this reaction when people experience a substantial bump in income or a financial windfall? Financially speaking, there is no harm in loosening your purse strings to indulge a bit when your cash flow improves. The danger lies in allowing lifestyle creep to nibble away at long-term financial goals. 

WHAT IS LIFESTYLE CREEP?

“Lifestyle creep” describes the gradual standard-of-living improvements that people make when their cash flow increases due to a bigger paycheck, reduced costs, or a financial windfall (substantial inheritance, court award, etc.)

Lifestyle creep examples include: 

  • More leisure spending on items such as restaurant mealslive entertainmentor an expensive new hobby – boating, skiing, art collecting, etc. 
  • Hiring help for household chores – cleaning, lawn mowing, landscaping, home chef or food delivery. 
  • An upgrade in living quarters  higher rentbigger house, fancier address.
  • More frequent and luxurious travel.

Lifestyle creep may be so insidiousyou fail to recognize it as it happens. Remember the fable of the ill-fated frog and the pot of boiling water? The water temperature increased so graduallythe frog failed to notice until it was too late to escape. Be careful not to thwart your good intentions for saving by adding “just a little here and there” to your expenses until you have cannibalized your saving opportunity 

HOW TO AVOID LIFESTYLE CREEP

Awareness, attitude, and prompt action are your best guards against financial creep: 

  • Shift your thinking from an emphasis on the lifestyle upgrades you can buy to a focus on the opportunities and financial freedom provided by increased savings and investments. 
  • Establish your household budget and short- and long-term financial prioritiesStart by tracking where your money goes now. Record your weekly spending in detail. Then adjust your goals accordingly to incorporate increased cash flow. It is much easier to make wise choices after you establish your short- and long-term financial priorities. Household-Budget
  • Decide how to allocate extra cash ASAP. Ideally, have a plan in place before the money hits your checking account! Reversing lifestyle creep is much harder than avoiding it. 
  • If you do not have a financial plan in place, stash extra income in an account separate from your household checking account until you thoughtfully decide where the money will go. 
  • Think hard before you increase fixed, recurring expenses such as mortgage, rent, car payments, and subscriptions. These are the most difficult to reverse or eliminate. 
  • As you map out your financial priorities, also take the opportunity to look for places to make spending cuts. Give yourself an even bigger raise. 
  • Finally, go ahead and treat yourself! Once you’ve got a financial plan in place, it is fine to allocate a portion of your cash to reward yourself for your hard work.

Are you curious about how to handle your raise or financial windfall? Consider reaching out to the financial planners at FJY. Based on your personal priorities, we help you put your money to work where it best supports your life goals.