Avoid Lifestyle Creep: The Silent Wealth Destroyer

You earn a lot of money, but your bank account does not reflect that.  You look around at your modern condo on the lakefront and you scratch your head.  It sure seems like a mystery to you.

You worked hard and earned a $10,000 raise a few months back. You figure you’ll be able to save more money now that you’re making more.

Although, you have splurged since the raise. Designer pyjamas, a brand new BMW, and of course your $2,000 iChill flagship phone purchase. All so you can chat with your friends and family on your favourite messaging app WeSpy.

You just can’t figure out.  Where did all your money go? Why don’t you have more in your bank?

The reason is that you didn’t avoid lifestyle creep, also know as lifestyle inflation.

In this article, you’ll read about six examples of lifestyle creep that you might face.  Recognizing the problem is the first step to solving it.

Then you’ll learn about the eight ways you can avoid lifestyle creep. Keep reading to find out more.

Lifestyle Creep

Lifestyle creep is a mindset change where items or services you once viewed as luxuries now become necessities because you believe that you have finally “made it”.

Lifestyle creep occurs when your non-essential spending increases as your income rises. As you make more money, your former “wants” suddenly become “needs”.

Once you increase your spending a little here and a little there, a habit gets formed and your standard of living goes higher.  Once that happens, it is often hard to retreat to a lower standard of living. 

Statistics Canada reported in their Survey of Household Spending for 2019 that Canadian households spent an average of $2,458 on food at restaurants. That amount represented 24% of a household’s total food spend for the year. That is a clear example of a “want” becoming a “need”, and it represents the creation of a new standard of living.

If you find that you aren’t saving enough, then something has to change. 

Importance of Avoiding Lifestyle Creep

Lifestyle creep can negatively affect your ability to achieve your financial goals, whether you want to build an emergency fund, reach financial independence, or save for a child’s education fund. It is often hard to recognize when lifestyle creep is taking over your life because it happens at a slow pace and over an extended amount of time. 

When your income goes up, look to pay off any non-mortgage consumer debt and then increase your savings rate, which is the percentage of money you save from each dollar earned.  

So you need to avoid lifestyle creep to achieve your financial goals and help create a financial safety net in case things go south–like you lose your job, or you have a huge unexpected expense. 

Here are 6 examples of lifestyle creep so that you are more aware of this sneaky phenomenon.

6 Examples of Lifestyle Creep

1. Buying a Huge House

Often when we start making more money, we do so while heading into the most expensive part of life.  So when your income increases, you feel it’s necessary to move into nicer accommodations to signal that you have “made” it, or just to do what you think is the next logical step in your life. 

If you meet a partner or spouse, you may think you need to move to a bigger house because you need the extra square footage. 

The problem is there are a lot of extra costs with bigger homes that we rarely associate with the cost of the home itself. 

There are one-time costs and taxes associated with a home purchase like realtor, land transfer, moving and lawyer’s fees. 

However, it is the recurring costs you do not associate with the house cost that will drive your expenses higher each month –a bigger mortgage payment, increased utility bills and higher property taxes. 

Do you need an enormous home?  If you have fewer than two kids, do you need a four-bedroom house? That extra bedroom could cost you a few hundred thousand dollars in a hot real estate market.   

2. A More Expensive Car

After your first raise at work, you may want to upgrade your old car.

So you buy a new car but there are a lot of associated costs with this purchase as well.  On top of the agreed purchase price, you will also owe money for the car loan and face recurring costs in the form of gas, maintenance, insurance, and license plate renewals. 

Your car also has the lovely distinction of losing value every year until it eventually reaches $0.  So when you buy a $50,000 car, most likely you’re going to own it until it’s worth only a few thousand dollars. 

You would be hard pressed to find another asset that is in high demand but also guarantees a huge five-figure loss over its lifetime.  I get it; you need to go places, but do you need to buy the latest model from a luxury brand?

Lifestyle Creep 1

3. Food and Drink

When you were in college or university, you probably didn’t dine out as much as you do now that you’re firmly into the working career.  

When you have very little money, you make sacrifices because you are close to being broke all the time.  Once your income keeps increasing, you get a sense that you “have money” and you deserve the good things in life. 

You deserve it for the hard work you have done, but try to keep your spending in check, and when you do spend, do it in moderation. 

You used to bring your lunch to work when you first started your work career.  Now you go out to lunch three days a week because it’s fun and you think you can afford it.  Or you could be overspending on your morning treat, whether it be an expensive coffee, tea or bagel. 

You used to get all of those things at the supermarket and bring them to work, remember? 

There is no need to dine out at restaurants multiple times a week or order appetizers, desserts and even alcoholic beverages. 

An increase in income can even lead to an exclusive, higher priced alcohol collection. Brands price certain alcohols at an exclusive price because irrationally, people will think it is better quality, but that is all part of pricing psychology. 

4. High-End Wardrobe

You used to shop for discounts, or go to warehouse sales to rock the styles from your favourite brand.  Now you just go in-store and purchase things at full price because you are making more money. 

Do you need name brand underwear?  Who is going to see it?  What about designer slippers? You could go off-brand and no one would know the difference.  

5. Top-Notch Electronics

If you’re a technology nerd, you may want the latest of everything.  Much like a car, most electronic items are expensive when they debut, only to drop in value as time marches on.

Flagship smartphones, digital watches, wireless headphones and laptops become obsolete.  Often you want to have what everyone else does, or a slightly upgraded version just to “wow” your family and friends.

While you need a phone, does it need to be the fastest and the one with the best camera features?  A mid-tier phone could do roughly the same job. 

6. Convenience Items and Services

As your income grows, you believe you are busier and working harder and therefore should be able to purchase convenience items or services. 

Examples would be ordering and paying excessive delivery fees for food brought to your doorstep by Skip the Dishes or Uber Eats.  Remember when you used to cook your dinners even after a long day?

Other examples of convenience creep are housekeeping, lawn-care services or car wash services.  Yes, you are busier than you were earlier in life, especially when you start a family, but with a little time management help, you could still do most, if not all, the tasks on your own.

I used to make eight or nine-hour drives down to see family in New York and New Jersey when I was a kid.  However, now I may choose to fly, rather than drive.  What would cost a few tanks of gas and two fast food meals at most now could cost $500. 

All to save five hours each way. 

Now there may be health reasons for this, but if not, then you’re looking at spending $1,000 – $2,000 more for a family of four to save ten hours of travel. 

Yes, even a personal finance blogger can experience lifestyle creep, everyone does to some extent.

We are Not Good Planners or Forecasters

You and are I are not good financial planners.  Without a professional financial planner, it is hard to understand the money ebbs and flows throughout life. 

When you are starting your career, in your twenties, you think you know how life will go, but you will often underestimate how much your life will change in the next decade or two. 

You assume that your salary will increase as you age, but if you get laid off in your late forties, when you find a new job, you could make a lot less than before. 

It could be worse if you are let go when you are in your late fifties or early sixties as you could experience ageism.  Then you might only be hired at a fraction of your previous role’s income. 

Think about how much your 23-year-old self would have estimated it would have cost to buy a house, have a large wedding, buy a car and have kids and I’m sure you would agree that you underestimated the total amount of money needed. 

Housing prices in the Greater Toronto Area have at least doubled since 2015.  No one could have seen that coming, but that would surely increase your lifestyle costs. 

If you were budgeting to spend $400,000 for a home five years ago, it might cost $800,000 now.  If you don’t change your goals and downgrade to purchasing a condo when buying in today’s market, you may decide to overpay for a detached home just to achieve your dream from five years ago. 

Eight Ways to Avoid Lifestyle Creep

The great news is that there are many ways to tame your lifestyle creep.  Just being aware of the term is a step in the right direction.  Here is a list of eight ways that you can avoid lifestyle creep. 

Lifestyle Creep 2

1. Create a Budget

Creating a budget is the only way you will know how much money you have coming in and going out. 

You can choose to track your income and expenses with a pencil and paper, by using Excel or by downloading a budgeting app like Mint. 

A budget helps you look at your finances monthly, which are grouped into special budget categories.  That allows you to uncover potential areas in your life where you are overspending.  You can then focus on areas where you can easily reduce your spending first. 

Each month, it is worthwhile to go over your transaction history and review if you are spending on your needs or your wants to help avoid lifestyle creep. 

Be careful, as you need to look at the individual items closely. You can say groceries are a need, and they are on the whole.  However, buying two tubs of ice cream doesn’t qualify as a need, that’s more of a want.

A smartphone is necessary for communication with friends, families and services, but a flagship phone isn’t necessary when a mid-tier phone can do everything you need to do day-to-day.  So scrutinize your purchases and remember the goal is to live a great life but also keep your costs low.

2. Set Financial Goals

Financial goals are targets you set for yourself that are related to debt repayment, investing, saving, spending, or earning income.  Having a goal gives you an objective to focus on. 

Financial goals help you discover what is truly important to you.  If you have a goal of building up a $5,000 emergency fund and you have nothing saved as yet, that becomes your target. 

If your friends are going for a weekend getaway to Montreal, you need to make a choice based on your new goals.   Having a financial goal doesn’t mean turning down every fun request, it means balancing your current wants with your future desires.

A goal gives you the motivation to improve your finances. 

Part of your financial goal setting involves making it visual.  Something as simple as placing a Bristol board in your closet or washroom with your financial goals will remind you every day what you want to do with your life.  That keeps your spending in check.

3. Intentionally Decide on a Savings Percentage for Future Income Increases

If you know a promotion is on the way, or you get a raise via a new job at a new company, plan out how you will divide your newly earned wealth. 

Yes, do it ahead of time. 

A standard rule of thumb is to split your income increase by taking half and putting it into savings or investments and then spending the other half.  Depending on your other financial goals, you may decide that you should only allocate 30% of your new increase to non-essential, fun spending.  That’s cool too.

Enjoy what you have earned by spending some of it, but do it in moderation.  A Zero Based Budget is a wonderful method to use because every dollar gets a job and it will force you to plan and balance your spending against other financial goals like debt repayment, saving or investing. 

4. Take Advantage of Registered Investing Accounts

Your RRSP is an account designed to save for your retirement years.

Each year you can contribute 18% of your previous year’s income into your Registered Retirement Savings Plan (RRSP) up to a maximum of $29,210 in 2022.  Your Tax-Free Savings Account (TFSA) contribution limit is $6,000 for 2022. 

Allocating a huge portion of your leftover money for investing will curb your spending on non-discretionary items like concerts, amusement park tickets and vacations.  

For best results, automate the amount you can safely manage to invest each month from your chequing account where your direct deposit goes.  The money will be in your investment account before you can even think of spending it.  That limits the amount of non-essential spending you’ll do.

Out of sight, out of mind. 

5. Ignore the Spending Habits of Your Friends

If your friends buy expensive gadgets, houses and cars, just chill and stay firm.  Remember, if you get into debt trouble trying to match them, they are not responsible for your overspending.  You have your own goals and you know your monthly budget.  So it’s on you. 

Your friends may have wildly different household incomes or they may be far into debt.  You will never know unless they tell you. 

Life is built on perception.  You see someone with an expensive car; you think they are successful.  Are they really, though? 

You may want to impress your friends, but why do you even care what your neighbours think about you outside of being a respectful person?  How often do you talk to them, anyway? 

If your friends are the “spendy” types, do not be afraid to go online and find personal finance communities to speak with like-minded people.  Sure, they may never be people who you hang out with in real life, but it may surprise you how accountable you hold yourself if you find some good posters online.

And if your friends are great people–do not ditch them because they spend more money on things than you do.  That is ridiculous.  

Be upfront with them and tell them why you can’t afford to hang with them from time to time.   

6. Avoid Social Media Temptation

Social media is almost exclusively aspirational and dream-based.  Big brands pay or sponsor a lot of influencers in certain lifestyle spaces when they have a huge following.   Usually, the influencers are nothing more than an extension of an advertising campaign. 

Everyone wants to show you how to ‘live a glamour life’, but without knowing your goals and dreams, they cannot possibly do that.  Hardly anyone shows you their problems online, so remember you probably don’t know how much debt someone is incurring to show you their “best life”. 

Enjoy social media for the entertainment value it provides, but that’s about all you should take away from it.  

If you still find yourself spending on things you see in your feeds or stories, then delete the app.

7. Focus on Creation and not Consumption

If you try to create a business or a side-hustle like starting a blog, then you have less time to consume.  Your efforts are focused on something other than browsing online for deals because you’re bored.   

8. Delay Gratification

Sometimes the best idea is to “sleep on it.”  If you feel like going out with your friends on Friday night to a huge party overlooking a spectacular skyline, sleep on it.  Same if you see that your favourite brand of shoes is on sale for three days only. 

With sales or promotions, you will realize that even without the new shoes, jeans or upgraded laptop you can still wake up happy. 

Will the item you crave add value to your life?  

Will you be happier in two years with your purchase today? 

Budget Comparison of Lifestyle Creep

Sometimes it’s better to see lifestyle creep in action.

If you look below, you will see your income increased by $1,000 after-tax each month with your latest raise. 

HOORAY.

In the original situation, you made $4,000 per month.  With the raise, you jumped up to $5,000 per month.  Yet you’re only left with $400 per month in savings each month. What happened? 

The answer is lifestyle creep.  It’s hard to notice, but it makes you weep. 

You bought a new fancy upgraded home and between your mortgage, utility, and property tax increases, 75% of your raise disappeared just like that, into thin air.  Your insurance costs rose too. Your savings rate actually tumbled from 10% before your raise, down to 8% after your raise. 

CategoryOriginal ($)Raise ($)
Income4,0005,000
Expenses  
Home2,0002,750
Food600700
Utilities200250
Transportation500550
Wardrobe100100
Insurance100150
Personal Care100100
Total Expenses3,6004,600
Savings400400
Savings Rate10%8%

In periods of transition lifestyle, creep can be a silent menace.  From 25 to 40 years old, your life is filled with large changes and following along with everyone else’s program can get you into trouble. 

If you took the $1,000 raise and stayed in your current home, you could have been cash flowing $1,000 more into savings and investments each month. 

Or if you chose a more moderate increase in spending for fun activities, you could have allocated 25% or $250 towards entertainment and lifestyle expenses while banking the other 75%.  That would be the best of both worlds, balancing fun today and retirement security tomorrow.

Avoid Lifestyle Creep Conclusion

Lifestyle creep occurs when your non-essential spending increases as your income rises. Some examples of lifestyle creep include buying a larger house than you need, a more expensive car and enjoying too much fine dining.

The good news is that you can take some steps like starting a budget, setting financial goals and delaying gratification to stop lifestyle creep before it starts.

Now that you know the warning signs of lifestyle creep, how are you going to combat it? Let us know in the comments below.

Avoid Lifestyle Creep FAQs

How might lifestyle creep affect financial independence?

Lifestyle creep causes you to purchase more non-necessities which eats into your savings rate. Therefore it can severely hamper your ability to achieve financial independence especially if you want to reach that goal earlier in life. If you save less, then you will take much longer to reach financial independence.

What are some signs of lifestyle creep?

Some signs of lifestlye creep are buying a larger house than is necessary, a luxury car, and purchasing designer brand apparel and top-end electronics.

How do you fight lifestyle creep?

You can fight off lifestyle creep by creating a budget, automatically setting aside savings, unsubscribing from retailer e-mail lists, avoiding social media temptations and by delaying instant gratification.

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2 thoughts on “Avoid Lifestyle Creep: The Silent Wealth Destroyer”

    • Thank you, have a great day! It’s important to save at least a portion of your bonuses or raises. It’s a balance, live a little now, save for the future too.

      Reply

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