Broker Check

Beware of Lifestyle Creep!

May 13, 2022

Lifestyle creep, also called lifestyle inflation, is a financial planning term, and according to BusinessDictionary means “an improvement in the standard of living of people to the extent that luxury goods turn into necessary goods.”1  In other words, the purchases and enjoyments that were once special treats or only happened every “once in a while”, become part of your routine and are viewed as necessary purchases.  Some examples of this are the occasional specialty latte becomes the daily drink of choice, the “special occasion” dinners become the Friday night routine, or the cars in the garage become nicer and nicer and are always this year’s model.

Lifestyle creep is something that just about anyone needs to watch out for, but particularly those who are actively working and continually increasing their income.  If it is gradual, and occurs over an extended period of time, it may be hard to notice.  Arguably, this can be even more of a problem for those in the early years of their career who are seeing quick increases in their income, are inexperienced with handling money, and are anxious to jump into a lifestyle they had envisioned before they were making money.  Think of that college student who has been eating peanut butter and jelly sandwiches for four years and can’t wait to start eating out all the time at their favorite restaurants!

With that being said, we work hard for that raise, promotion, or bonus, and rightfully so, we want to enjoy the fruits of our labor.  Over time it is perfectly normal to enjoy the breathing room of a more relaxed budget whether that is enjoying a few more meals out instead of cooking and cleaning dishes, treating your family to exciting vacations and the lifelong memories they create, or whatever else is most important to you.  The main thing is to just be aware of the situation and like most things in life, moderate and balance these changes over time.

What are some things you can do to keep lifestyle creep in check?

  • Save more: With every raise or bonus, at minimum, try to enjoy half and save half.  If you get a $2,000 raise, enjoy $1,000 and commit to investing that other $1,000.  “Save” can also mean paying off debt quicker or possibly building up cash for a large upcoming purchase such as a house or car.  Of course, every situation is unique and may call for a different course of action such as investing the majority of each raise if your retirement savings is not on track.  For those just entering the workforce, I would also encourage a more aggressive plan to use all of those initial raises to tackle any debt and start building up an emergency fund – another few years of peanut butter and jelly sandwiches could really payoff.
  • Automated Savings: With the popularity of 401(k) plans among many employers, immediately increasing your deferrals by 1% or 2% with each raise can be an easy way to have extra savings taken away from your paycheck - before you even see it!
  • More than just a 401(k): If you are financially able and have reached the point of maximizing a retirement plan such as a 401(k), you are able to save $20,500 in 2022 or $27,000 if you have reached the age of 50. Be aware that if you are going to maximize those contributions in a year, that doesn’t necessarily mean you are done saving for the year!  Depending on your income and goals, you may need to be saving additional money inside other types of investments vehicles (or again, rapidly paying down debt) to ensure that overall you are putting away enough for your future.
  • Create a budget: While possibly the least exciting idea, keeping tabs on your spending with a budget can help you understand what you are spending money on as well as have a grasp on how much your expenses are growing.

“Beware of lifestyle creep” doesn’t mean never enjoying life to the fullest or enjoying life’s comforts that you work hard for.  Rather, be aware and monitor your lifestyle changes and take some steps to keep it in check.  Your team at Stonegate is here to help you strike the right balance between enjoying life today and planning for a financially independent future.


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