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What is lifestyle creep & how can you avoid it?

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6 mins

“I deserve it.”

“Why shouldn’t I reward myself?”

“I can finally afford it.”

These are all things we say to ourselves after that long-awaited bump in pay comes through. While we were waiting, we watched our friends do the things we longed to do: buy a new car, dine at expensive restaurants, wear the latest fashions.

“Now it’s my turn” can be an expensive phrase to utter, and it’s a sure sign of lifestyle creep.

Lifestyle creep, explained

Lifestyle creep is the gradual increase in your spending as your income increases. And it’s insidious. It’s called creep for a reason; it creeps up on you quietly, and before you know it, it has ahold of you. It’s stealthy. Sneaky.

You work hard for your money. You probably have personal income targets or goals you long to reach, so you can do and have the things you want. So, it’s natural to want to spend the additional money in your wallet after you get that well-deserved raise.

Sure, there’s nothing wrong with going out for a nice dinner to celebrate after the boss has told you about the bigger paycheck you’re going to be getting. But does that need to be followed up with a trip to the car dealership to buy that flashy new sports car you’ve been eyeing? Or a trip to your favorite store to get yourself new clothes with the designer label you’ve always pictured yourself wearing?

If you find yourself yearning for more goods and services because you now have more money to spend, then lifestyle creep has you in its clutches. The good news is that you can free yourself from its grip, or if it hasn’t gotten ahold of you yet, you can avoid it.

How to avoid lifestyle creep

Before you pull your wallet out to make that purchase, let’s look at how you can avoid lifestyle creep and make better decisions about your spending. Here are five tips.

1. Create a budget & stick to it

A budget is the only way to understand and change how you spend your money. It is the blueprint of the future for your financial journey. Making and keeping a budget is the number one way to ensure that your spending stays in check while your income grows.

Many people think of a budget as restrictive and as something that limits their fun. But that doesn’t have to be the case. When you create your budget, you’ll want to make sure all of the necessities are in there, like rent/mortgage, utilities, and installment payments like student loans.

But that doesn’t mean you can’t have future goals in there, like that new car. It does mean that you’re not going to run out and buy it today. You’re going to put money aside each month until you can afford it, after you pay down your debts. Budgeting for it will eliminate impulse buys, which are a major contributor to lifestyle creep.

[ Related: 26 personal budgeting tips, from A to Z ]

2. Pay yourself first

As your income and spending increase, the line of people with their hands out gets longer and the balance in your bank account gets smaller. The smart money move is to put yourself at the head of the line.

You should always pay yourself first. Take a pre-determined percentage of your paycheck and deposit it into an account that you won’t touch unless it’s an emergency. And by emergency, it doesn’t mean that the flat-screen TV you’ve wanted for months is now on sale. It means that it’s there if your transmission needs to be replaced or your air conditioning unit can’t be fixed. Your emergency savings fund is not a “put-and-take” account; it’s a “put-and-leave” account.

By paying yourself first, you’ll be able to use that raise to pay off the credit card debt you’ve accumulated or pay those student loans in full. You also can have that increase put into you’re 401(k) or IRA. Your future self will thank you.

3. Keep good company

There’s an old saying, “Fast money makes fast friends.” In other words, when some people know you have more discretionary income, they’ll gravitate towards you more. They may want to borrow from you, or they may want to go out with you because they know you’ll pick up the tab. It’s best to avoid these types of people. You can politely decline to spend time with them.

Your circle of friends also should be scrutinized. Are they in the fast lane going faster? Do you need to spend more than you should just to keep up with them.? We all want to be included, but at what cost? You should think twice before accepting that invitation to the weekly happy hour at that expensive club. Perhaps a night out at the movies with friends will be just as much fun.

4. Don't give in to social media

It’s fun to see what friends and influencers are doing, but it can also cause feelings of inferiority, which can lead to us making lifestyle changes that we can’t afford. You may be making more money, but do you really need to, and can you afford to, take that trip to Europe just because your good friend from high school did?

People put their best images out on social media. You don’t see them in curlers or with “bed head.” They’re usually dressed to the nines and look like they’re having the time of their lives. So, take what you see with a grain of salt. Don’t let yourself be swayed into spending money you should be saving or investing.

5. Treat yourself... responsibly

Avoiding lifestyle creep doesn’t mean you can’t enjoy the pay increase. You’ve worked hard for it; you should be able to enjoy the benefits. But in moderation.

You may want to take that skiing trip and get new ski clothes, and that’s perfectly okay. But don’t use plastic to pay for it. Establish a special savings account for fun and deposit 10 percent of your pay increase every payday. You’ll be surprised how quickly it adds ups, and it’s a great way to inspire yourself to get that next raise so you can deposit more.

The bottom line

Lifestyle creep is perfectly avoidable. Knowing that it often stems from an increase in income helps. Before you upgrade your lifestyle to reflect your new salary, make sure you upgrade the framework for your personal finances. This includes everything from reassessing your budget to increasing your disability insurance coverage.

It takes willpower to drown out the voices tempting you to spend more because you make more. By following the tips outlined above, you’ll put your hard-earned money to work for you. And you’re the person that deserves it most.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published January 4, 2021
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