lifestyle creep

Lifestyle creep occurs when your standard of living starts to outpace your actual income. It’s generally related to making more without saving more — foregoing important financial goals, like establishing a proper emergency fund or saving for retirement, in lieu of buying a larger house, nicer car, or luxury vacation.

While it’s tempting to start spending any extra money you earn as soon as you, well, earn it, lifestyle creep can expose you and your family to a certain amount of financial risk. After all, there’s no guarantee that you’ll stay at a given income level.

How to avoid lifestyle creep

To prevent you from falling prey to lifestyle creep, also known as lifestyle inflation, we consulted Certified Financial Planners, financial advisers, and other personal finance experts. Here are 38 ways to avoid lifestyle creep.

1. Stop lifestyle creep before it sets in

Keep your standard of living as low as possible for as long as possible, particularly if you’re a recent graduate, says Danielle R. Harrison, a Certified Financial Planner at Harrison Financial Planning in Columbia, Missouri.

“Rather than buying a brand new car, cell phone, or apartment, take that extra money and aggressively pay down your student loans or put away as much as you can for both your short- and long-term goals,” Harrison suggests. “If you’ve never experienced the money, it is much easier not to know what you are missing.”

2. Set a budget

“How can you track your spending if you have no idea where it’s going in the first place?” says savings expert Andrea Woroch. “A budget tells your money where to go and keeps you from wasting it on things that don’t matter.”

3. Include a monthly savings goal

“Savings” is an essential line item of every budget. Pay yourself first before allocating or upping your discretionary spending.

4. Try the 50/30/20 rule

There are varying opinions on how much your total income should go toward savings and retirement goals each month. Moreover, the answer is likely to vary, depending on your full financial profile.

But if you’re looking for some base guidelines, consider applying the 50/30/20 rule, a budgeting method that allocates 50% of your income to essentials, like rent and bills, 30% to discretionary spending, and 20% to savings.

5. Keep checking account balances low

“If you keep a low balance in your checking account, you’re less tempted to feel like you have money to spend,” says Shang Saavedra, personal finance blogger at SaveMyCents.com.

6. Automate savings

Set up direct deposit to ensure your access to excess funds is minimal.

“For many of us, we view funds as available to spend the moment they hit our bank account,” says Nicole Gopoian Wirick, a Certified Financial Planner based in Birmingham, Mississippi. “To avoid this, I encourage clients to implement a direct savings plan where money automatically transfers from their bank account to a savings and investment account.”

7. Aim to max out annual retirement account contributions

Americans are allowed to put a certain amount of money each year into designated retirement accounts, like 401(k)s, individual retirement accounts (IRAs), or Health Savings Accounts (HSAs). For instance, in 2021, employees can contribute up to $19,500 to their 401(k) plan.

You can establish a robust nest egg for retirement if you aim to hit these limits each year while keeping lifestyle creep at bay. At the very least, you can…

8. Automatically up the ante

“Many employers are also now offering automated 401(k) deferral increases that will increase the amount you contribute to your employer-sponsored retirement plan by a certain percentage annually,” Harrison says. “Some even coincide the timing with annual merit increases or bonuses.”

9. Consider net vs. gross income …

When receiving a raise or bonus, make sure you have a firm understanding of how much more income you’ll net after taxes before changing your spending habits.

10. … then use raises wisely

“Use the increase to pay down debt or increase your savings,” Harrison says. “Then any extra can be used to increase your standard of living.”

11. Calculate annual costs

Monthly commitments can be deceiving.

For instance, “buying a car with a $400 monthly payment vs. one with a $250 monthly payment is only $150 more per month, but a significant $1800 extra per year,” says David J. Haas, a Certified Financial Planner with Cereus Financial Advisors in Franklin Lakes, New Jersey. “I recommend keeping both a monthly and an annual budget and look at any new monetary commitments through the lens of both budgets.”

12. Track your spending

A budget is only helpful if you actually use it. Use a budgeting app or a simple spreadsheet to monitor your spending each month.

13. Set up spending alerts

Many banks, credit card issuers, and budgeting apps will send you notifications via text, email, or push alert when a large transaction hits your checking account. These notifications can serve as a deterrent for large purchases and keep you abreast of how much money may be available in an account at any given time.

14. Audit bank and credit card statements

As we alluded to earlier, seemingly small monthly purchases can add up over time. Review bank and credit card statements for “zombie charges” — recurring subscriptions, renewals, or fees for goods or services that you’re no longer using or don’t really need.

15. Revisit your budget regularly

“Re-evaluate every year whether or not you’re saving enough,” says Rick McCallister, a Certified Financial Planner based in Torrance, California. “Adjust as necessary.”

16. Skip spending categories you don’t care about

“Instead of living a life that is expected of us from our friends and media, design a life that goes along with your values,” says Saavedra. “I don’t need to have a fancy car if I don’t want one. I don’t have to have a big house if I don’t want one.”

17. Apply some pandemic perspective

“For a lot of people, Covid-19 has led to lower expenses in certain areas,” says Jason L. Williams, a Certified Financial Planner based in McLean, Virginia. “I’d suggest that people really think about the amount of joy that spending brings before just simply adding it back without any reflection once they can do so.”

18. Set firm financial goals

Otherwise, you’re more prone to popular spending traps as your income increases.

19. Monitor your progress toward them

“Review your goals and make sure that you are on track for living the future life you want,” says Molly Ford-Coates, founder and CEO of Ford Financial Management. “Having your goals front and center reminds you what you are working for.”

20. Consult a professional

A financial adviser or certified financial planner can help you set up more sophisticated savings strategies if you have a complex account or need more assistance.

21. Leverage the buddy system

“Having someone to hold you accountable for your financial decisions can be an excellent method to avoid lifestyle creep,” says Forrest McCall, owner of personal finance site Don’t Work Another Day.

Check-in with this person regularly to ensure you’re not straying too far from your financial goals.

22. Test-drive two checking accounts

“To set up my clients to succeed, I have them set up two different checking accounts,” says Stephanie Trexler, a Certified Financial Planner, CEO, and Financial Advisor of Golden Goose Wealth Planning in Grand Rapids, Michigan. “The first is for bills, which are set up on auto-pay each month. The other is for everything else, including fun spending money.”

23. Establish a true emergency savings account

Absent other savings goals, experts generally recommend having enough money to cover three-to-six months’ worth of expenses set aside in a designated savings account. Bonus tip: Maximize these funds by looking for an account that offers a competitive annual percentage yield (APY).

24. Pay your credit cards in full each month

“Don’t carry balances,” Avani Ramnani, a Certified Financial Planner with Francis Financial, says. “This will ensure that you spend only what is in your bank account.”

25. Put the plastic on ice, when not needed

If you start over-charging, “cut up your credit cards and go purely to using cash or a debit card,” Ramnani says. “This will automatically restrict your spending to what is in your bank.”

26. Stick with your starter home

Resist the urge to “move up” unless a larger home is necessary.

“If the smaller house continues to fit your needs, you could be saving thousands of dollars in moving and closing costs and even more with the reduced costs associated with your ‘starter’ home, relative to a more expensive house,” says Joyce Streithorst, a Certified Financial Planner based in Melville, New York.

27. Avoid becoming ‘house poor

If you’re looking for guidance on how much to spend on a home, the government has described homeowners who spend 30% or more of their income on housing as “cost-burdened” or “house-poor.”

28. Consider all financing carefully

It’s better to live below your means than above it, so think twice before taking out a loan or making any purchase that will put you in the red.

29. Have a debt payoff plan

If you’re already in debt, prioritize payoffs overspending. There are various strategies you could utilize — we’ve rounded up 50 of them right here.

30. Maintain good credit

A good credit score helps you qualify for the best deals on credit cards, mortgages, and other loans — leaving more money for saving and responsible spending.

You can maintain good credit by making on-time payments, keeping credit card balances low, and limiting the number of new credit applications at any given time. Learn more about credit scores.

31. Limit your screen time

“When we bombard ourselves with images of others ‘best” lives, it is hard to not yearn for more. Spend time finding what is most important to you,” Harrison says. “Because of the hedonic treadmill, spending more on consumer products doesn’t make us happier in the long run.”

32. Always be bargain-shopping

“Just because you have more money to spend doesn’t mean you should waste it because you don’t feel like looking around for savings,” Woroch says.

Plenty of savings tools, browsers, and sites can help you quickly compare-shop and find discounts. Check out this guide for 50 ways to save more.

33. Get your luxury goods second hand

For “some of my favorite luxury items, I shop thrift stores or online platforms like Poshmark and eBay,” Saavedra says. “I always tell myself ‘once you use a new item once, it is used.’ So there is very little difference to me in buying used vs. buying new, other than the savings.”

34. Commit to banking at least part of your windfalls

Resist the urge to spend all of your tax refunds, annual bonuses, or other windfalls on pricey wants instead of needs. However …

35. Allow yourself some leeway

“Avoiding lifestyle creep can be similar to straying from a healthy diet,” says Scott A. Bishop, a Certified Financial Planner based in Houston. “Most don’t do well on restrictive diets as they also do not do well with restrictive (seemingly punitive) budgeting. If you are having financial success, enjoy some of your successes, but pay yourself first.”

36. Start a ‘treat yourself’ account

Control splurges by setting up an account for them specifically. Joseph R. Stemmle, a Certified Financial Planner, based in Richmond, Virginia, keeps a “treat yourself” account, inspired by Amy Poehler sitcom “Parks and Recreation.”

“If I do want to treat myself or splurge on something, I know I have money set aside that won’t impact my overall budget,” he says.

37. Find new ways to ‘spark joy’

“Focus on creating experiences and quality time together with family and friends, as opposed to buying,” says Marguerita M. Cheng, a Certified Financial Planner based in Potomac, Maryland.

38. Start a side hustle

If you find yourself yearning for more, you can consider new ways to generate more income toward spending or savings. Here are 49 side hustles to consider.

This article was produced and syndicated by MediaFeed.org.

Image Credit: NazariyKarkhut

Jeanine Skowronski

Jeanine Skowronski is a veteran personal finance journalist and content strategist, she has previously served as the Head of Content at Policygenius, Executive Editor of Credit.com and a columnist for Inc. Magazine. Her work has been featured in The Wall Street Journal, American Banker Magazine, Newsweek, Business Insider, CNBC and more.

Jeanine Skowronski is a veteran personal finance journalist and content strategist, she has previously served as the Head of Content at Policygenius, Executive Editor of Credit.com and a columnist for Inc. Magazine. Her work has been featured in The Wall Street Journal, American Banker Magazine, Newsweek, Business Insider, CNBC and more.