If you are anything like me, your first job after high school or college was not very lucrative. I was like many others who entered the workforce with a lower-than-average salary.
The good news is that most people see their salaries increase over time. This can open up new opportunities.
It often feels that those pay raises disappear just as fast as they appear. It isn’t easy to save money, and we wonder where all the extra money went.
Lifestyle creep: What does it mean?
Lifestyle inflation, also known as lifestyle creep, is the gradual increase of your discretionary spending with an increase in income.
Lifestyle inflation can be intentional. We choose to live better lives as we gain more. Lifestyle creep can happen without our realizing it. We have more money in our bank accounts, so we spend it.
It’s normal to want to improve your lifestyle with a higher income, but it can also cause financial problems. If you live a lifestyle equal to your income, you’re not allocating extra money to your retirement accounts or emergency fund.
Lifestyle creep examples
Lifestyle creep comes in many forms. Lifestyle inflation can be caused by small increases in expenses that add up. You might, for example, sign up for a streaming service, spend more on nicer clothes, or change to organic food.
These small increases in spending across many areas allow lifestyle creep to go undetected until you examine your Budget.
Lifestyle inflation can also be detected through large purchases. Your lifestyle might be enhanced by buying a new car or upgrading your home.
How to avoid lifestyle inflation
Lifestyle inflation is something that many people don’t realize. However, there are ways to avoid it. Continue reading to find five ways you can avoid lifestyle creep.
CREATE A BUDGET
It’s a fact that you’ve probably heard: Having a budget is the best way to manage your spending. But it’s worth repeating.
A budget is a way to tell your money where it should go, rather than spending what’s already in your account.
The 50/30/20 Budget is one of the best budgets for addressing lifestyle creep. This budget method allows you to allocate 50% of your income towards needs, 30% toward wants, 20% toward savings, and 20% toward debt and debt.
SET FINANCIAL GOALS
Setting goals requires you to have a plan for your money. If I want to pay the down payment for a house in two years, which costs me $24,000, then I will need to save approximately $1,000 each month to achieve that goal.
If I am excited to be a homeowner, and that goal is very important to me, then I won’t be tempted to spend the $1,000 on unnecessary spending. No, I already have a plan.
CREATE BOUNDARIES ABROAD DEBT
Lifestyle creeps dangerously when there isn’t enough income to cover it. Unfortunately, this is the case for many.
Some situations are difficult to avoid. Sometimes, you may need to borrow money or a credit card to cover a financial emergency. For large purchases such as cars, financing may be the only option.
Spending more when your income increases are easy because we have more money in the bank. It’s easy to spend when you have the money.
Automating your savings is a great way to get around this problem.
I started saving seriously when I decided to save more. I set up an automatic transfer from my checking to my savings account every month after I received my monthly paycheck. It was initially $50, but it grew over time.
DO A PLANNING FOR WAGE INCREASES
Have you ever deliberated where the money you get from pay raises? It’s a common mistake, but it is the best way to avoid lifestyle creep.
Let’s suppose you just received a $3,000 raise after taxes. The $250 extra doesn’t seem that much when you break it down by the month. If you look at the bigger picture, $3,000 can be a substantial amount of money you can use to save or invest in other financial goals.
Can you reverse lifestyle inflation?
Many of us have fallen prey to lifestyle creep in our adult lives. While discussing ways to avoid lifestyle creep with every pay increase, it is equally important to discuss solutions for existing lifestyle creep.
Is it possible to reverse lifestyle inflation?
It’s hard to reverse lifestyle inflation; I won’t lie. It isn’t easy to return to the less expensive version of yourself once you have improved your lifestyle, eating habits and wardrobe. It’s possible to reverse lifestyle change.
To eliminate lifestyle inflation from your Budget, I believe it is important to be clear about your values. It’s much easier to spend money in ways that are consistent with your values if you are clear about them.
Is lifestyle creep acceptable?
It won’t be easy to make any meaningful financial progress if you increase your lifestyle proportion to your salary.
Lifestyle creep is not okay. No one expects you to live the same lifestyle as you did in your twenties when you shared an apartment with three other roommates and earned minimum wage.