Lifestyle Creep. What is it? How do you deal with it?

Aug 24

What is lifestyle creep?

Lifestyle creep is where you find as your income increases, so does your expenditure (for no apparent reason).

You could consider your increase in expenditure in two separate categories.

1). Sometimes it could be legitimate expenditure like you need to buy more professional clothes for work.

2). Other times it’s just things you bought because you could. The increase in cashflow has resulted in you now being able to afford more things — so you’ve bought more things.

My own examples of Lifestyle Creep are:

Joining an expensive gym
Getting an online/remote gym coach
Buying a new suit

How do you know when it’s occurring?

This is the tricky part. Let’s break your spending into two forms:

One of purchases: a new suit, computer, clothes;
On going purchases: joining Netflix, joining a gym.

On-going purchases are the most straightforward- you weren’t spending anything per month on something and then you started spending money on it.

The easiest way to identify it is if you are tracking your monthly expenditure. You notice an uptick in your spending per month as your income also increases.

Another way to identify it is if you track how much you’re saving as a proportion of your income. If you’ve noticed the proportion has progressively decreased, as your income has decreased. That may be a good indicator of there being lifestyle creep.

What can you do to avoid it?

I have 2 suggestions:

Have a savings % of your income

Say you target 20% of your income going to savings. That way even as your income increases, you’re saving progressively more over time. This may not fully prevent lifestyle creep. But at least you’re still saving more (in terms of absolute $$$) as you earn more.

Have a plan for what you’re going to spend your increases in income

If you are expecting your income to increase by say 10–20% in the near future. Why not have a plan saying you are going to save 70% of your income increase on savings and the rest you’re going to put towards a holiday.

I don’t think lifestyle creep is necessarily a horrible thing. I just think it’s something people need to be aware it could end up impacting your longterm financial goals if you allow it to creep up on you.

Sanjee Sen