Today I want to talk to you about lifestyle creep. Lifestyle creep is also known as lifestyle inflation. What is it? How can you avoid it? And, is it bad?
What is lifestyle creep?
Simply put, Lifestyle creep is the more you earn, the more expenses you have because your living standards become higher. What in the past might have been a luxury now has become a “necessity”. This often happens gradually along with increased income.
Some examples of lifestyle creep are:
- Paying for housekeeping
- Buying a car for the brand and not the utility
- Getting a premium gym membership
- Buying a house that is a bigger than you actually need
- Taking a taxi instead of cycling or taking public transport
Lifestyle creep is quite common for people who aren’t busy with their finances. You’ll hear about people with above-average salaries and also having a (credit card) debt. By spending money this way, it makes it harder to save for buying a first home, retirement, or paying off student loans.
I think people who are serious about achieving FIRE are at less risk of lifestyle creep because we are highly aware of our spending behavior. However, I do think it can sneak up on you too without realizing it. You might be spending money on things that are less “necessary” than you think.
Why do I think this? Well, I’ve noticed that I’m guilty of this myself. I’ve noticed a shift in how easily I spend larger amounts of money.
This has two reasons:
- I’ve started earning much more than previous years.
- I reserve 15% of my income for fun things. Due to Covid-19 the money I reserved for things that. I enjoy most (eating at restaurants and going on vacation) are not possible. Instead, I’m spending this money on other “fun” things, such as on a personal trainer and online courses. Budget-wise it might not seem like I have lifestyle creep, but what happens when I’m able to travel again? I’m really enjoying personal training and can’t image not going anymore.
How can you avoid it?
The practical answer is quite boring and predictable: keep track of your expenses and budgeting.
However, it’s important to be aware that you are not an expense tracking robot, but a human with emotions and desires. You need to address the mental aspects of lifestyle creep too.
The first mental trap is to “rationalize” your expenses, “I’ll take an Uber instead of public transport because it’s faster” or “I need a personal trainer otherwise I’m not motivated to exercise”.
The second trap is the thought that you “deserve it”. For example, ”I’ve been drinking coffee at home the whole week. Now I deserve an artisan fancy hipster cappuccino.” Or “I worked so hard this week I deserve a massage.”
The third trap is being afraid of being seen as “cheap”. I personally struggle with this a lot. I know my income is above average and when I hang out with a friend who earns significantly less I somehow feel obligated to pay for drinks.
To be clear, I’m not judging anyone for taking an Uber, buying a fancy cappuccino, or getting a massage. What I’m saying is you need to be honest with yourself and mindful about your spending behavior.
is lifestyle creep bad?
If you have a good income, but you end up with unnecessary debts and are struggling to make ends meet. If you feel like you never have enough money. Then, you might want to reconsider your spending behavior. Ongoing stress about money is linked to migraines, heart disease, diabetes, sleep problems, and more. If you’re privileged to earn enough money, then why would you self-sabotage yourself in this way?
If your goal isn’t FIRE and you have all your financial obligations on point (including your pension and emergency fund) and decide to YOLO-spend the rest of your monthly budget, then I think that there is nothing wrong with that. Enjoy your new lifestyle, you’ve probably worked hard to achieve it.
However, lifestyle creep is something to look out for if you’re trying to become financially independent, because it can significantly slow your process down. So, if your goal (like me) is to retire as soon as possible, then make sure lifestyle creep isn’t getting in the way of your “real” life goals.
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