How to Avoid Lifestyle Creep

Lifestyle creep can easily derail your financial goals. Learn to combat it by setting clear goals and budgeting.

Raising your salary can be fantastic for your finances if it helps you meet your savings goals; however, an unexpected windfall might hinder those same goals if it leads to unnecessary spending on things such as impulse buys and coffee runs.

1. Know Your Limits

As you get older and begin earning more, it can be tempting to upgrade your lifestyle, yet this does not need to come at the cost of your long-term financial goals.

To be effective with budgeting and avoid lifestyle creep, the 50/30/20 budget method is an effective way of allocating specific percentages of your income towards needs, wants and savings.

Goal-based budgeting allows you to prioritize what matters most in life. For instance, if travel is one of your main aspirations goals, setting a monthly goal that covers expenses may help.

2. Make a Budget

No matter whether it is from receiving a raise or paying off debts, extra cash may be easy to spend rather than put towards savings or other financial goals. Therefore, experts advise creating and reviewing a budget periodically so as not to allow spending habits to get out of hand.

Lifestyle creep often happens slowly over time and may be hard to detect. It often results from little expenses adding up over time such as subscribing to streaming services, purchasing higher-quality clothes or dining at more costly restaurants.

This can be especially dangerous for individuals near retirement who may have paid off longstanding recurring expenses like their mortgage or child-related costs, leaving more discretionary income available for more extravagant purchases such as luxurious vehicles, more costly vacations or upgrading their home. Instead, try to think strategically about which changes would truly add value and prioritize those instead of satisfying current luxuries.

3. Set Financial Goals

Financial goals and budgeting are the cornerstones of lifestyle creep. For instance, when receiving an increase in pay, consider setting aside part of it towards savings goals; alternatively replace costly entertainment subscriptions with cheaper ones and put the difference into savings.

Travel expenses or more modest upgrades like purchasing a new pillow or longer charging cable could also help save on costs as you practice saving for major purchases in the future. By making these small purchases in order to defer larger ones, it will help develop saving habits before making major upgrades.

Compare yourself with others as this can create feelings of FOMO (fear of missing out). Instead, surround yourself with people who support your long-term financial goals and won't pressure you into spending on status symbols. Writing down goals has proven 1.2 to 1.4 times more likely for success.

4. Don’t Be Afraid to Ask for Help

Young professionals entering their first well-paying jobs or early promotions may find themselves susceptible to lifestyle creep. With increased income comes purchasing nicer clothing, eating out more frequently and taking vacations - spending that can quickly consume savings for retirement or debt repayment efforts.

Lyons suggests setting a weekly allowance that covers essential purchases to keep their spending under control and regularly checking savings and credit card accounts for balances.

Lifestyle creep is hard to detect, yet can quickly derail a financial plan and leave you living paycheck to paycheck. In order to avoid falling into this trap and reach your goals successfully, having access to a trusted financial advisor is invaluable - they can assist in creating budgets that align with your values as well as setting financial goals that match them.

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