What is Lifestyle Creep (And How Can I Avoid it)?
If you’ve ever found yourself with an infusion of cash, only to spend your way through it and then end up right back where you started in debt or otherwise, then read on.
November 22, 2021
Just got a bonus, raise or promotion? Congratulations! Having a little more to spend in your bank account each month can give your budget some much-needed relief if you’ve been struggling to make ends meet. However, as they say, “more money, more problems.”
Enter lifestyle creep. The financial phenomenon in which the more money you have, the more likely you are to spend it, ending up right back where you started, living paycheck to paycheck, or perhaps even in debt.
A windfall at work doesn’t have to mean more spending. Below, we’ll explain lifestyle inflation in-depth, as well as ways you can avoid overspending and put those newfound funds to good use.
What is lifestyle inflation?
Lifestyle creep, often called lifestyle inflation, is when your spending grows with your salary. More specifically, it’s spending associated with non-essentials. What may start as “I deserve this,” or “I should treat myself just this once,” becomes the norm, and what was once perceived as a luxury may become a regularity.
As the name suggests, your budget creeps higher as your salary goes up. While you may have the best intention with your shiny new paychecks, it doesn’t take long for the novelty to wear off, and indulgent spending habits to set in.
On average, it takes just two months for a behavior to become a full-blown habit. Even a couple of months after a raise, you might start to wonder how you made ends meet before.
On its face, lifestyle inflation may seem harmless, but it can deeply impact a person’s budget. When you repeatedly spend as much as you make, there’s little room to grow savings, pad your emergency budget or contribute to retirement savings. Lifestyle inflation is prioritizing immediate gratification, which in turn can mean neglecting future savings.
When unchecked, it’s easy for lifestyle inflation to creep into your spending habits.
How to avoid lifestyle inflation
Lifestyle creep is most likely to happen when you’re not paying attention to your finances. But by setting up strategies for checks and balances within your budget, it’s possible to avoid the pitfalls of lifestyle inflation.
Automating savings and financial goals
Think of it this way, if you can’t see your new, higher paycheck enter your account, you’ll have a hard time spending it.
Often called “paying yourself first,” you can automatically send a portion of your paycheck to retirement, savings accounts, or debt repayment.
If your goal is to boost your retirement account balance, contact your employer's payroll department to raise your pre-tax retirement contribution by the amount of your paycheck increase.
According to experts, you should be setting aside between 10% to 12% of your pre-tax paycheck for retirement. If you've been working toward meeting your company's 401(k) match amount, this could be a good way to get to that goal.
Trying to set up your emergency fund? Set up an automatic transfer from your checking account into your savings account the day your direct deposit hits. When you set it and forget, chances are you’ll grow the funds without even missing the extra spending money.
If you’re trying to repay loans or credit card debt, you could set up an additional automatic payment each month — potentially paying down debt faster. If you’re paying down multiple credit card debts at once, you might even consider a payoff app Tally†, which can manage all your credit card payments in one place.
Prioritizing those upgrades
If you’re sleeping on an ancient mattress or still use that couch you found for free on the side of the road, it’s understandable to want an upgrade. A raise or bonus could feel like the time to refresh some things that desperately need replacing, but before you dive in, prioritize.
Making multiple large purchases at once could overextend your budget or even put you in debt. Instead, make a list of what might need replacing, including the cost, and prioritize them by order of importance. From there, making slow and steady purchases over an extended period can help you stay within budget and makes it less likely that you’ll make impulse purchases.
With a bigger paycheck, you could set aside a little of that extra cash each month in your budget for these potential “upgrades.”
Planning for the future
For many, the lure of lifestyle creep prevents thinking about the future by spending now. After a few months of making more money and adjusting, you may find yourself living paycheck to paycheck again.
To break this cycle, consider how making a little more could help you fund your future. It may be time to think about mid-term savings goals, like saving for a downpayment, wedding, or kids in your future.
Reflecting on what you might want to do with your money in the next 5 to 10 years could motivate you to set aside more each month instead of overspending on discretionary purchases. You might even open up a new savings account specifically for this goal.
Creating a “fun money” budget
Of course, it’s natural to want to enjoy the fruits of your labor, but the key is moderation. A raise might leave space for more “fun money” in your budget. However, to avoid lifestyle inflation, you’ll need to have some restraint.
It could be time to revisit your budget to see if there are any leftover funds for fun after meeting the above goals. The “fun budget” line item could mean anything from dining to movie tickets, beauty treatments or other non-necessities.
With a monthly figure in mind each month and an eye on your budget, lifestyle creep is less likely to sneak up on you.
Avoiding lifestyle creep while staying debt-free
It wouldn’t be called lifestyle creep if it wasn’t sneaky. If you’re not vigilant about how you allocate your increased pay, it won’t be long before that paycheck starts to feel paltry again.
Consider setting up automatic transfers, prioritizing your purchases and revisiting your budget to help slow that lifestyle inflation.
Another thing that can creep into your lifestyle? Credit card debt. Whether it’s snuck up on you or you’re actively paying credit card debt down, Tally can help. With an easy-to-use app, Tally manages all your credit cards in one place with automated payments, utilizing a lower-interest line of credit that can help make your debt disappear faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.