More Money, More Problems? 3 Ways to Save Your Budget From Lifestyle Creep

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It’s always nice to get a bump in pay at work.

But that extra income won’t mean much for your savings account if your rent, car payment, or brunch budget increases to match your new salary. 

“When you get a raise at work, and go finance a car … it’s typically putting you back in the same position financially that you were in before you got the raise,” says Clarissa Moore, owner of the personal finance site the Budget Queen. “It’s that vicious paycheck-to-paycheck cycle.”

When you make more money, do you see your expenses going up right along with it? If so, then lifestyle creep may have found its way into your spending habits — and could be eroding your financial future.

Here are three ways to identify and combat lifestyle inflation so you can start working toward your financial goals.

What Is Lifestyle Creep?

Lifestyle creep, also known as lifestyle inflation, is when your expenses or spending go up as your discretionary income increases. It can happen when you get a raise or free up money by paying off a debt, like an auto loan or student loan. 

“[Lifestyle creep] happens so slowly, people don’t even necessarily realize it’s happening until they stop and take a good look at their money,” says Allison Baggerly, founder of the personal finance site Inspired Budget. So it’s important to always be aware of what’s going on with your hard-earned cash.

Pro Tip

Review your expenses every three months. Then you can see not only new things you’re spending on, but also your existing expenses that have gone up in price.

Lifestyle creep can easily show up in bigger purchases, like a more expensive home or apartment, or nicer car. But it can also happen with activities with a smaller price tag, such as eating out, buying more expensive clothing, or subscribing to a new streaming service. Because it doesn’t happen overnight, lifestyle creep can be hard to spot if you’re not intentionally keeping an eye out for it.

If you’re wondering whether you’re experiencing  lifestyle inflation, you may need to look back at past financial spending and money-management activities. If your income has been steadily increasing, but you aren’t getting any closer to your financial goals, lifestyle creep could be the culprit.

“Typically, it’s not until those moments when people realize that something’s wrong. A lot of times, it’s months later, because they tell themselves, well, this is just the one month thing. It was December, December is always hard,” Baggerly says. “But when it continues for January, February, March, that’s when they start realizing OK, I really do have a problem and something needs to change.”

3 Tips for Avoiding Lifestyle Creep

Mitigating lifestyle creep is important because you never know when the next financial emergency will happen. 

If every increase of your income goes out as fast as it comes in, then you may not be as prepared as you could have been for an emergency, like losing your job or having your car break down. And taking on a chunk of new debt to deal with an emergency or missing payments can negatively affect your credit score, which limits your financial options. “It creates a snowball effect if you don’t have the cash to fund something if it comes up,” Moore says.

To help you corral the increase in spending that can easily accompany an increase in income, here are three tips for managing lifestyle creep.

1. Create a budget and review your expenses

Having a budget is an essential step to managing lifestyle creep and your finances in general. Being able to see where all of your money is going can help you identify areas where you’re spending more than you thought you were. 

“One thing I personally love, and tell people to do is to complete an expense audit every quarter,” Baggerly says. Reviewing your spending every three months gives you a chance to decide what to keep and what to cancel. And you can also identify expenditures where you may want to shop around for better deals. “Lifestyle creep isn’t just us choosing to increase [our spending],” she says. “It happens whenever our car insurance increases, yet, we didn’t choose to negotiate or shop around for a better rate.” So it’s important to keep an eye on your existing expenses, not just the new ones you may add when you have more money.

2. Know your goals and plan ahead of time

Managing any extra money you get becomes easier if you already know where it’s going before you get it. “A raise is rarely a surprise,” Moore says. “You know when you’re getting close [to a raise], so you should start planning for that raise.”

Set aside time to figure out what your financial goals are and how you want to prioritize them. You may want to build an emergency fund, save more for retirement, set aside funds for a vacation, pay down debt, or save up for a down payment on a house

Once you’ve written down what you want to accomplish, you can map out how you’ll get to those goals as you earn more money. Maybe you’ll want to pay off all of your debt before you start saving for a house. Or you could set aside  a percentage of your increased income to build your emergency fund while also saving more for retirement and a vacation.

The specifics of your plan aren’t as important as having a plan. And regardless of what your initial plan is, you can always adjust down the road.

3. Plan to celebrate

Taking an overzealous approach to your finances isn’t a viable long-term strategy for everyone. “Instead of going the extreme route … use the extra money from your first paycheck with the raise on it to buy yourself something,” Moore says. “It shouldn’t be anything that’s a recurring expense. It’s a one-time purchase to treat yourself.” So go ahead and get yourself that nice pair of shoes and a fancy dinner.

You can avoid lifestyle creep without shunning everything that falls into the “fun” category. It’s important to enjoy the process of working toward your financial goals “I don’t believe you should be sacrificing everything,” she says. “Do what you want to do, but do it in moderation and always be mindful of those goals.”