What Is Lifestyle Creep and How Can You Avoid It?

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Woman with an armload of material goods, looking at a dangling "goals" sign to illustrate "lifestyle creep" topic.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informed his friend and fellow author, Joseph Heller, that their host had likely made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds, “Yes, but I have something he will never have.” Vonnegut asks, “Joe, what on earth could that be?” “The knowledge that I have enough.”

Knowing that you have enough is the antidote to lifestyle creep, and the calm that Heller exudes in that statement is within reach if you are conscious of the war you are waging. The challenge, however, is that (as the phrase implies) it creeps up on you. So to combat lifestyle creep and its damaging effects on your financial and emotional well-being, you must first learn what it is and how to spot it. 

What is Lifestyle Creep

The phrase lifestyle creep refers to our tendency to spend more as our income increases. And while that may be completely normal and natural when you are starting out, it is easy for spending to get out of control over time. You become accustomed to a higher standard of living, and before you know it, the things you once considered luxuries feel like necessities.

In your working years, you hope to see a progression in income as experience grows. Receiving a raise is exciting, and if all goes well, this will continue to the point where your earnings at 50 could be five times what they were at 30. However, if your expenditures are up five times too, you are not getting ahead, and eventually, it will catch up to you.

What Are the Signs of Lifestyle Creep

Boat on the water to illustrate concept of lifestyle creep.

The thing about lifestyle creep, or lifestyle inflation, is that it sneaks up on you, covertly affecting your spending habits. So one of the best ways to fight lifestyle creep is to become aware of the signs. For example, have you noticed any of the following?

  • Sluggish Savings
    Have your savings accounts become stagnant? That can happen occasionally, but if you have been at a plateau for over six months, it could be a sign of overspending. You may have developed a habit of shopping at expensive grocery or home goods stores or transferring money into your checking account to pay for home improvement projects. Whatever the case, it is worthy of notice.

  • Rising Recurring Expenses
    Your monthly spending will increase over time, especially in times of inflation, but there is a point where it becomes excessive. For example, if you joined a country club and decided to spend money on a boat a few years later, it might be worth checking in. Although you work hard and deserve to have fun, these items result in ongoing costs. Do you use them enough to justify the expense?

  • Luxury Travel
    Have you ever stayed at a fancy hotel? Hear no judgment; I’ve done this myself, and it’s nice to splurge occasionally. But did you notice that the next time you booked a trip, you craved that luxury and comfort, even if it was only for a quick overnight? Some people consistently give in to that feeling until they can’t imagine traveling any other way.

  • Procrastinating on Financial Responsibility
    We go through periods of varied enthusiasm for financial responsibility, like we do exercise or nutrition regimens. But you will likely fall behind if you don’t address money matters proactively and consistently.

How Can Lifestyle Creep Affect Your Financial Health?

The trouble with lifestyle creep is that it is hard to unravel and can put your entire financial future at risk. It can also create a lot of stress. For example, if you don’t have a budget and sense that you have reached an unhealthy spending level, you may worry about money incessantly. These worries have merit because reaching your short- and long-term financial goals may become impossible if you don’t control your spending.

What is at stake? Plenty, but here are a few things that spring to mind.

  • Peace of mind
  • The ability to eliminate or reduce the stress of a big job when you are older and have less passion for the grind.
  • Your dream of finally gaining control over your time.
  • The ability to make healthcare decisions from a position of strength.
  • Your capacity for weathering life’s inevitable ups and downs.
  • The ability to retire early or at all.
  • Buying a second home later in life to enjoy with your grandkids.
  • The resources to pay for big family vacations later in life.

But if that’s not enough to convince you, let’s talk numbers. 

It might be hard to imagine wanting some of the things above if you are young. But we all want the financial flexibility to live the life we want. Saving money is the best way to achieve that, and there is a tremendous cost to waiting because you miss out on the power of compounding. 

To show you what I mean, look at what happens if you invest $1,000 monthly into something that generates long-term returns of 10% (similar to historical returns of the S&P 500). And let’s assume that you start investing at age 30. 

$1,000 a month at 10% yields $1,991,378 after 30 years. If you wait until you are 40 or 50 to start saving, your money will still grow, but less. Twenty years of compounding yields $694,027, and ten years yields $193,843. So, it is never too late, but it’s best to stash some discretionary funds away as soon as possible.

How to Avoid Lifestyle Creep

“The hardest financial skill is getting the goalpost to stop moving.”

– Morgan Housel “The Psychology of Money”

Of course, I can easily tell you to save money. But, it can be challenging to do so when everyone around you appears to be spending with reckless abandon. So, below are recommendations for dealing with lifestyle creep.

1. Focus on Yourself

It doesn’t matter what other people are doing; if you allow them to distract you, you will find it impossible to be intentional with your own life. I have seen this play out repeatedly over the years. Those who live lavish lives without considering the future will eventually come face-to-face with the harsh reality that the party will end. And, by then, it might be too late.  Remember the saying, “Comparison is the thief of joy.”

2. Take Pride in a Minimalistic Approach to Investing

Recently, I have noticed an attack on traditional investing that seems especially prevalent with high-income earners. “Alternative investments” have become the new cocktail party stock tip, making people think they need something more clever than ownership in the world’s great companies. More often than not, these investments add no practical value to your plan. Alternative investments are built to cater to ego and are often lifestyle creep in disguise.

Don’t overthink it! 

Index investing is one of capitalism’s greatest inventions. It makes investing unbelievably simple and is one of the few investment products built to enrich consumers, not Wall Street. As a result, we can quickly and inexpensively buy into the earnings streams of the best companies in the world. So, why do we feel the need for more?

As a society, we spend an inordinate amount of time chasing investment glory. This is time wasted that could be spent on something far more interesting and beneficial to your career or family. Our most financially successful clients are those who long ago decided to buy stocks and hold them forever.

3. Get a Firm Grip on Your Recurring Expenses

How much do you make each month, how much do you need to spend, and how much is discretionary? Be brutally honest about this, then consider whether you can eliminate any excess. Overspending can become habitual, but most of us quickly adjust once we notice it.

Image of credit card to illustrate debt.

4. Pay Off High-interest Student Loans and Credit Card Debt, and Establish an Emergency Fund

Debt is stressful, and the interest can be crippling, so handling these items is foundational. If you can’t pay off your debt entirely, explore ways to restructure your loans so they don’t cost so much.

Then, set up an emergency fund to protect yourself against life’s inevitable ups and downs. That will help you avoid making decisions under duress. Of course, the exact amount to keep in reserve depends on your comfort level, but most people like to keep at least six to twelve months of cash on hand.

5. Be Purposeful With Any Extra Money

Tuck away as much as possible. But don’t just leave it in your bank account. Instead, make that money less accessible by setting up automatic payments into your retirement savings and increasing the amount every time you get a raise.

Then establish parameters to guide your spending decisions. For instance, don’t take an extravagant vacation just because you can. Instead, choose activities that will provide high emotional ROI. Use money as a tool to experience exciting things and nurture your relationships.

6. Consider the Company You Keep

Think carefully about the people you surround yourself with. Humans are social animals, so the drive to fit in and feel a sense of belonging is powerful. I’m not suggesting you avoid that; I’m simply asking you to become aware that your relationships influence you in many ways, including how you spend money. It is time to adjust if your social circle pressures you to live beyond your means.

7. Build a Financial Plan

Holistic financial planners like me typically start with an end in mind – asking questions about when you want to retire and how much you will spend when you do. But these can be highly challenging questions, especially when retirement seems a long way off.

Please know that we understand that, and it is ok to have this discussion without a firm answer. The point is to set targets and start thinking realistically about your goals and what you can expect as you move through life. For instance:

  • Will your parents need support as they grow old? 
  • How long do people in your family typically live? 
  • When do people in your field commonly retire?
  • If you have kids, do you want to help them pay for college

Your priorities will change over time, and it can be difficult to pinpoint when you have “enough,” but that’s ok as long as you are intentional. The point of planning isn’t to prepare for some “parachute” moment; it’s about building the financial comfort and control you require to navigate change and do what you want and need to do.

The Bottom Line

Lifestyle creep is the enemy when you crave independence, but combating it is relatively straightforward once you are aware of it. At 30 years of age, avoiding lifestyle creep might mean little more than eliminating debt and establishing the habit of saving. Then, as life evolves and you get closer to 40, you will likely start thinking about the future more rigorously. By 50, having a plan becomes essential, but if you play your cards right, you will be in a strong position. So the earlier you tackle this challenge, the better off you will be at every age.

Check out our “Why Golden Road” page to learn more about how we work, or reach out to explore whether we are a fit for you.

Author

  • Kevin Caldwell

    Kevin Caldwell is a principal at Golden Road Advisors and a CERTIFIED FINANCIAL PLANNER™ (CFP®️) practitioner with over 15 years of experience in the financial services industry. In addition to providing advice and guidance to clients, he regularly contributes to publications such as Kiplinger, Yahoo! Finance, Dalbar, and MarketWatch.

    kevin@goldenroadadvisors.com Caldwell Kevin

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