How to avoid lifestyle inflation (creep)
Lifestyle inflation, or lifestyle creep, can take hold of anyone. It’s a cycle that can lead to poor financial health. But what is lifestyle creep?
Lifestyle inflation or “creep” refers to the gradual increase in spending as your income rises. It’s a fairly common practice to upgrade your lifestyle when you get a raise or promotion at work. The thinking is, “I’m earning more, so I can spend more.” While this may seem harmless at first, over time, it can lead to higher living costs which offsets any extra income, leaving less room for saving or investing. Here are some ways to avoid the creep:
Keep Budget in Check
One way to avoid lifestyle inflation is to regularly check in on your budget.
- Make sure you are tracking how much money is coming in.
- Track how much money is going out.
- Keep tabs on your debts and savings.
If you’re diligent about monitoring your budget, you’ll spot overspending before it gets out of control.
Update Savings
To avoid lifestyle creep, plan ahead and be proactive. When you get a raise or a bonus, the first thing to do is put some money into your savings account. Any increase in income should come with an increase in savings. An easy way to do that is to make sure you have your savings account automated, so money is directly sent to your savings each time you get paid.
Prepare for Emergencies
Getting a pay raise and making more money is great. That extra income can help you be more prepared for the future by boosting your emergency fund. You can’t predict the future, but you can prepare for it with some money set aside for the unexpected.
Consider the Big Picture
Another way to avoid lifestyle creep is to consider the big picture. That means thinking about larger purchases before making them.
Keep an eye on long-term goals like:
- Buying a new home
- Taking that dream vacation
- Living a comfortable retirement
Do One Thing: Increase your savings every time you have a pay increase.
Original article by Chris O'Shea and adapted in partnership with SavvyMoney.