How to Deal With Lifestyle Creep

If you place your hand in a bowl of lukewarm water and start heating it, you’re unlikely to notice the rising temperature. Your hand adapts to the gradual change.

Eventually, the water will get to a point where it’s so hot it could burn you and you will notice. But it might not immediately register.

Remove your hand from the bowl of hot water and dunk it into a bowl of ice water, however, and you’ll notice the temperature difference immediately – and it isn’t going to feel good.

Lifestyle creep can happen to us in our financial lives in much the same way.

What Is Lifestyle Creep?

Most people get some kind of raise each year. They earn a little more than they did in the year before. Without a plan to save that raise, it’s very easy to use it up by adding a few luxuries to your regular spending.

It starts with little things: adding premium cable channels, buying the more expensive bottle of wine, making more frequent phone upgrades, giving nicer gifts for birthdays, adding impulse items to your cart on Amazon, buying tickets for better seats at an event, staying in nicer hotels, paying for slightly nicer airline seating….

Each of those things individually doesn’t seem harmful – especially as you earn more and can truly afford a few luxuries. But little things have a way of adding up. Before you know it, you adapt without even noticing.

Lifestyle creep happens when your spending rises with your income and you adjust to a more expensive way of living. Once you get used to one or any of these upgrades, eliminating them is like dunking your warm hand into ice water.

It becomes very hard to do.

How to Keep Lifestyle Creep from Sabotaging Your Financial Goals

Some inflation in your lifestyle isn’t a bad thing, but you don’t want the subtle upticks in your expenses to reach a point where it makes reaching your goals more difficult.

Research from the Federal Reserve Bank of New York shows that most of your inflation-adjusted wage growth (AKA, pay raises) will occur in your early working years before leveling off in your mid-career and peaking in your 50s.

Similarly, a study from the Labor Department shows that the greatest inflation-adjusted income growth comes in your 20s, but continues to grow at a declining pace in your 30s and 40s.

That tells us it’s crucial to keep lifestyle creep under control when you receive raises earlier in your career. And to keep lifestyle creep in check, you need a system that makes it easy to save your hard-earned dollars.

Both creating a reverse budget that treats your goals like bills that must be paid and automating your finances can help you avoid the type of lifestyle expansion that’s detrimental to your financial goals.

Because reverse budgeting focuses on saving, you can’t spend what you don’t have. Increasing the amount you save naturally reduces the amount you spend, but it also forces you to prioritize your expenditures.

This is important because most people find that gradually saving more allows them to cut spending that doesn’t really fit with their values. Your budget can help you stay on track. But again, you need a system that makes it all automatic.

Automatically Escalate Your Savings (Instead of Your Spending)

The benefits of automation align with the human tendency to embrace habit. In fact, more than 40 percent of the actions people perform each day are driven by habit rather than actual decision.

Not only are we creatures of habit, but we also tend to resist change. Change requires more mental effort, which our brains are hardwired to avoid. Routines become automatic, but change jolts us into consciousness – sometimes in uncomfortable ways.

While automating your finances from bill pay to investing is easier than ever, few people find a way to automatically increase their savings over time. Setting up automatic escalation requires a little more legwork depending on where the savings are going.

Many online investment platforms will allow you to increase your recurring contributions on an annual basis. Same goes for many online banks. Take advantage when you can to make saving much easier, and much more likely to actually happen.

If this feature is not available, I’d recommend creating a recurring calendar event for January 1st of each year with specific instructions of how much you will commit to increasing your savings.

Again, you can’t spend money that isn’t there, and this automated process ensures your money, including raises, goes to your savings before you’re tempted to spend it (or before you get used to having it in your account in the first place).

Creating a System for Financial Success

Creating a system for financial success is all about making intentional, systematic choices with our money.

A good system will direct dollars to the things that matter to us most and keep us on track for reaching our end goals. In addition, a systematic process can reduce and eliminate the human tendencies that lead to poor consumption, saving, and investing decisions – including the decision, mindful or not, to give in to lifestyle creep.

10 thoughts on “How to Deal With Lifestyle Creep

  1. Mark

    Our daughter in law from China tells us that most people in China are able to save without automation and with only one account. Why is it that they have the discipline to do what most Americans do not? I don’t understand this.

    1. Jason S Co

      Don’t forget that the wealth that Chinese people are seeing is a relatively recent phenomenon, especially when compared to other developed nations. The generation that is saving a lot now still has had the mentality to save that they learned from their parents, who likely didn’t have the chance to accumulate any wealth growing up. This is similar to how the people who went through and grew up during the great depression during the 1930’s are better savers than our generation.

      In more developed parts of China like Hong Kong, Shanghai, Beijing, materialism is very pervasive and when people have more wealth and more “shiny stuff” to buy, it will be much harder for them to save. Given enough time, I believe consumerism will start to take over in China and more people will be spending more than they can afford.

      For example, look at November 11th, “Single’s Day” in China. It is the equivalent of “Black Friday” in the US and people have spent $25 BILLION in ONE DAY in China.

      I am speaking as a Chinese immigrant and being married to a fellow Chinese immigrant.

      1. Mark

        Jason, thank you for sharing your thoughts. Those are great points and it makes a lot of sense. It’s just frustrating to me to see how undisciplined many Americans are with their finances.

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  5. Actually I realize I have always done this and it is extremely easy to do if your company offers decent direct deposit set up.

    Figure out what you want to spend per month and send that fixed amount to your checking account. Send remainder to savings account. Done.

    As you get raises, they automatically increase your savings and you have to consciously go in and change your direct deposit settings to increase your monthly “budget”.

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