Living the Nightmare of Lifestyle Creep

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Perhaps you’ve received a raise at work. Maybe a financial incentive has come your way. Possibly you’ve paid off a long-standing credit card.

Each of these situations can put extra dollars into your pocket, which is great news. But if you’re not careful, it could bring financial problems with lifestyle creep.

Money experts say lifestyle creep can happen when the arrival of more money entices you to increase your discretionary spending. With that paycheck increase, you allow yourself to spend more eating out or upping your monthly budget on new clothes or shoes. But lifestyle creep can also trap you into a dangerous cyclone of out-of-control bills such as a new car or an expensive mortgage or rent payment. Once you go there, it’s difficult to get back.

“People are excited to receive additional dollars in their paychecks, but if they’re not careful, they can fall into the trap of spending on too many discretionary items when they could be saving for a rainy day,” said Bruce McWilliams, business consultant to organizations in the Midwest. “But the problem can be heightened if that person loses a job or a client or might have a medical problem that leaves him or her unable to work. Unfortunately, they’ve aligned themselves to a spending pattern that they can’t keep and experience financial hardship.”

The problem with Lifestyle Creep is that it can edge out larger financial goals such as stashing away money for a down payment on a house or boosting emergency savings for unexpected spending. You could also be upping contributions to retirement funds, which might be a double whammy because you’ve missed out on an employer match. Without realizing it, your financial security takes a backseat to discretionary spending with the threat of living paycheck to paycheck or mountains of debt staring at you from the rearview mirror.

According to Gayle Sato, a writer for the blog, lifestyle creep can feel like progress to the individual. Refining your lifestyle isn’t a bad thing, but you must comprehend your overall financial health and strive for solid success. Gayle suggests that as your income increases, realign your finances to incorporate the 50/50 rule. Save at least half of any additional money you earn, pay down debt or invest and the rest can be spent however you wish.

Sato provides additional sound advice. “Set long-term goals and track your progress. Think of socking away six months of income for expenses, save for a new car or contribute to your retirement account. Watch the revolving debt on credit cards or other accounts. When you live beyond your means and run up debt, you’re not positioning yourself well to achieve long-term financial goals like creating a nest egg or paying off your home. Maintaining too much revolving debt can also hurt your credit, which in turn makes you less financially resilient and can make it harder to secure the best terms on new debt such as a mortgage or car loan.”

She suggests automating your savings and investments. Instead of relying on pure discipline to stick to your goals, setting up automatic payments to your savings and investment accounts each month can help you prevent spending from ballooning out of control.

Sato also advises preparation for retirement and other fluctuations in income. “Excess discretionary spending is especially troublesome when your income drops, for example, if you lose your job, retire or decide to slow your work schedule to raise kids,” she notes. “Lightening your debt load and lifestyle expenses can help position you for a wider range of life options.”

“The important thing about lifestyle creep is to recognize that you have this issue and will create a plan to reverse the negative impact it’s having on you,” noted McWilliams. “Take a look at your income and expenses and, if necessary, have frank discussions with your significant other about getting a handle on your finances.”

A budget will help you follow your spending and you can determine if the purchases are necessary. Remember, be engaged in the moment as you spend money. Some recurring expenses are not necessary. Think about that magazine you never read or the streaming service you rarely watch. Eliminate them. Don’t forget the saying that “one man’s trash is another man’s treasure.” Selling things online can be a way to eliminate clutter and make a few dollars.

The nightmare of lifestyle creep can easily happen to anyone in any income bracket. Once you become comfortable with this new way of spending, the idea of cutting back can be extremely difficult. But if you’re in this position, educate yourself on your spending habits and make some tough choices to get your financial success back on track. You got yourself here but you can go back. Extravagant spending is not a requirement for a good life.