If you’ve ever imagined yourself winning the lottery, you’ve probably dreamt up a variety of ways in which you’d switch up your lifestyle to be a bit more extravagant. Big trips, a big house and a nice car, you could have it all.
Similarly, when you get raise or change jobs and start making more money, you may begin imagining the new and exciting ways you can put that extra money to work. But using your higher income in lavish ways could haunt you later. Even if something isn’t lavish, incremental differences can add up over time.
“Lifestyle creep” or “lifestyle inflation” is shorthand for when you increase your expenses and standard of living to match an increasing income. And if you continue to do this, you may never be able to build a healthy emergency fund or long-term wealth.
More money, more spending
Lifestyle creep can affect low- and high-income alike, and can happen whether you suddenly triple your income or start getting an extra $75 per paycheck.
Even some millionaires live paycheck to paycheck because they’ve increased their “normal” expenses and taken on debt to finance their lifestyle. It can happen quickly if you buy a large home and luxury car, and are suddenly stuck with higher mortgage payments, property taxes, and upkeep costs. And the move to a large home may prompt even more expenses as you try to keep up with the Joneses.
How to fight lifestyle creep
Taking the opposite approach could leave you happier and wealthier. If you can keep your expenses low while your income rises, you’ll be building your overall net worth and can set yourself up for long-term financial success.
Determine your priorities. Focusing on your priorities and goals can help you reframe your decision-making process and avoid getting caught up in what you can’t do or buy.
Consider writing out your personal and financial goals, and revisiting the list at least once a year. Whether you’re at the grocery debating buying gourmet cheese that’s $20 or shopping for a new car and considering the leather seat upgrade, ask yourself which purchase aligns with your goal.
While fighting lifestyle creep may involve some restrictions, once you’ve built up an emergency fund and paid off high-interest debt a higher income could support your goals and a few luxuries. And it’s important to recognize and celebrate your accomplishments, including a raise or new job. Just be cautious with purchases that lead to perennial higher expenses (such as the aforementioned large house and mortgage).
Remove temptation. If you might have trouble resisting the temptation to spend a little more, you could look for a way to eliminate the temptation altogether by putting your money to work first.
One method is to calculate how much your income increases and to allocate half of the rise to savings or paying off debt. This way, you get to enjoy your raise since you have more money to spend each month and your net worth increase more quickly.
If your employer offers a retirement account, you could increase your contribution rate. Even if you don’t have an employer-sponsored plan, you can set up a larger automatic transfer from your checking account to a savings account.
Or, if you’re paying off high-interest debt, increase your monthly payments. There’s nothing like treating yourself to that satisfying feeling you get when you see a balance diminish.
Be content. Most folks have experienced the rough patches of life when you have to make every dollar stretch. A pay increase can quickly change your circumstances, but ask yourself “does it have to change everything?” It may sound a little monk-like, but staying grounded and happy with what you have is at the core of fighting lifestyle creep.
The things that brought you joy when you were anxiously checking your bank account balance can still bring you joy. It could be the store brand cereal you like, cheap wine and movie dates with friends, the opportunity to listen to podcasts on the bus during your commute, or the rush of finding a steal at a local thrift shop. Resist the urge to buy more expensive things just because your bank account has a little more padding — if it’s been working for you, there’s no need to stop.
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.