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Financial Education

Preventing Lifestyle Creep from Overtaking Your Finances

Have you ever found yourself daydreaming about how you will spend your next pay raise or bonus? Maybe you plan to make repairs on your home, begin saving for your child’s future college expenses, or want to eliminate high-interest credit card debt.

However, before you know it, those funds are gone, and your goals remain incomplete. Where did all this new money go? It’s a phenomenon called lifestyle creep. We’re here to help you understand its causes and consequences and how to avoid it.


What is Lifestyle Creep?

Lifestyle creep, also known as lifestyle inflation, is when your general spending increases as your income rises. It’s a common occurrence and can happen to anyone. It might not seem like a big concern; after all, earning more money means having more money to spend.

However, lifestyle creep is a slippery slope. It happens so gradually that you may not notice the uptick in your spending. Things that were once considered luxuries now become part of your routine – and it can quickly sabotage your finances if left unchecked.


What Causes Lifestyle Creep?

While the common cause of lifestyle inflation is a sudden increase in income, it’s not the only reason this phenomenon occurs.

  • Inflation: As the cost of living rises, your spending on everyday items will likewise increase. If your income does not keep up with or outpace inflation, you may find the money you traditionally put into savings now being used to cover basic needs.
  • Increased Income: A higher paycheck or bonus often makes you feel more financially secure. Consequently, you’ll be more likely to spend more on areas you avoided previously.
  • Feeling the Pressure: Peer pressure, that is. Seeing others within your inner circle living a particular lifestyle or buying certain brands or products can pressure you to keep up.
  • Available Credit: Lifestyle creep doesn’t only result from an increase in income. On the other end of the spectrum, it can happen as more credit is made available to you. For example, if you open a new credit card with a high credit limit, you might be inclined to spend more.


What are the Consequences of Lifestyle Creep?

The effects of lifestyle creep can be sudden or gradual. You might not even notice it taking place. However, you’ll eventually feel the impact of this trend, and it can lead to significant financial challenges.

  • Less Financial Security: As your spending increases, it’s common to put financial goals and savings on pause. Or, even worse, you dip into your savings to keep up with your new lifestyle.
  • Higher Debt: Many people find they must take on more debt, such as credit cards, to keep up with their elevated lifestyle. More spending and higher credit costs can put you into a financial hole that’s difficult to escape.
  • Stress & Regret: The pressure of maintaining a more lavish lifestyle can lead to an increase in stress and anxiety. You may need to work longer hours or find other sources of revenue to keep up, which will only compound the tension. Eventually, you’ll likely come to regret financial decisions that are not aligned with your long-term goals and values.


How Can You Avoid Lifestyle Creep?

The greatest challenge with lifestyle creep is that you often don’t realize it’s happening. An extra dinner out here, a few additional purchases there, before you know it – your entire raise or bonus is spent. Preventing this trend from overtaking your finances stems from your ability to plan for it.

  • Stick to a Budget: Maintain a clearly defined budget that allows you to prioritize your goals. Following a budget and balancing regularly is the best way to ensure your spending doesn’t creep out of control.
  • Prioritize the Income Increase: If you know you will be receiving a bonus, pay raise, or other income (e.g., inheritance), plan for it ahead of time. For example, if you receive a bonus, put at least 50% into savings. Then, use the balance to treat yourself over the coming months or toward other immediate goals.
  • Track Your Expenses: Keep an eye on your daily and monthly transactions. If you notice your expenses creeping higher, identify the culprit immediately. If the spending increase is on non-necessities, reevaluate the pattern and look for ways to cut back.
  • Pay Yourself First: Paying yourself first means treating your savings contributions as a fixed monthly expense and immediately setting aside a portion of your income in something such as a special savings account for a holiday savings account. This strategy ensures you save regularly and prevents funds from being spent frivolously.
  • Remain Focused on Your Goals: Identify your long-term financial goals and create reminders for yourself. The more often you review your goals, the less likely you will spend recklessly or take on new debt to maintain a lavish lifestyle.


We’re Here to Help!

It’s always exciting when your earnings increase. And, while it is okay to enjoy your higher income, be sure to do it in a way that aligns with your financial goals and values. Awareness is the key to conquering lifestyle creep. Knowing what can happen if you succumb to overspending will help you avoid the pitfalls of this phenomenon.

If you have questions about budgeting or want to explore options to boost your savings, we’re ready to help. Please stop by any of our convenient branch locations or call 618-457-3595 to speak with a team member today.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.

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