In today’s fast-paced world, it’s not uncommon to see people constantly upgrading their lifestyles as their incomes increase. This phenomenon is known as ‘lifestyle creep’ or ‘lifestyle inflation.’ While it may seem like a natural progression to indulge in finer things as you gain more money, succumbing to lifestyle creep can have serious financial consequences for your financial stability in the long run. But how do you recognize it, and how do you stop it before it’s too late? We’ll explore that in this article and share valuable tips to help you resist its allure.
What is lifestyle creep?
Lifestyle creep refers to the gradual increase in spending and expenses that typically happens when your income rises. As people earn more money, they often feel entitled to upgrade their living standards, acquire more luxurious possessions, and indulge in extravagant experiences. While treating oneself occasionally is healthy, unchecked lifestyle inflation can lead to financial strain and mounting debt. All this would hinder your progress toward important financial goals like retirement savings or buying a home.
Five tips to overcome lifestyle creep
While it’s likely you can fall prey to lifestyle creep, you can take measures to prevent it from ruining your financial well-being (and investment opportunities).
1. Set up automated investing
One of the most effective ways to combat lifestyle creep is prioritizing long-term financial security. Automated investing can be a powerful tool to help you grow your wealth steadily without being swayed by immediate gratification. With Bondora, you can define the amount of your earnings you want to invest every month, and Go & Grow will take care of the rest.
2. Live below your means
Living below your means is a fundamental principle of sound financial management. Regardless of your earnings, being mindful of your spending habits and opting for a modest lifestyle can create a significant financial buffer. Differentiating between wants and needs will enable you to allocate more money to savings and investments, fostering financial stability and independence.
3. Try ‘No Spend Day/Week/Month’:
To break the cycle of unnecessary spending, challenge yourself with a ‘No Spend Day,’ No Spend Week,’ or, if you’re looking to challenge yourself, a ‘No Spend Month.’ During this allocated time, commit to avoiding all non-essential expenses. This exercise helps you become more aware of your spending triggers and encourages creative ways to enjoy life without relying on material possessions.
4. Save 50% of your raises/bonuses
Receiving a salary increase is undoubtedly a cause for celebration, but instead of spending the entire raise on lifestyle upgrades, consider saving at least 50% of it. This strategy allows you to enjoy a portion of the raise while boosting your savings significantly. As your income grows, your savings will also experience substantial growth, leading you closer to your financial objectives.
5. Use budgeting apps
In the digital age, managing personal finances has become more accessible with budgeting apps. These applications can help you track your spending, set financial goals, and create budgets. With real-time insights into your financial habits, you can proactively identify areas where you tend to overspend and make necessary adjustments to curb lifestyle inflation.
Here are some apps you can consider using:
- Fudget —designed for budgeting without the need to sync bank accounts
- EveryDollar —identify saving opportunities and cut expenses
- Honeydue —ideal for couples who want to manage their finances together
Combat lifestyle creep by investing today.