, , ,

Lifestyle Creep: When Your Wants Become Your Needs

Woman in car smiling

Let’s daydream for a second: How would your life change over the next year if you suddenly had an additional $500 to spend each month? How about an extra $1,000?

Would you upgrade your cellphone? Finally do those bathroom renovations and buy a decent vacuum cleaner? What about trading in the family car for something bigger and better? Or would you simply go on with life as usual but feel a lot less guilty about treating yourself to a meal out or the occasional massage?

Nothing quite beats the feeling of a sudden rise in income. At least for a short while, anyway, treating yourself to something you’ve been longing for feels like opening a window on the first nice day of the year: bright, lofty, light. So why doesn’t that initial sense of elation last—even when the larger income does?

That’s the phenomenon of lifestyle creep. Whether due to a rise in income (say, a big raise for a young professional) or a lowered cost of living (like empty nesters with no mortgage to pay), lifestyle creep isn’t just about routinely choosing the more expensive bottle of wine or enjoying services like housekeeping and extended cable TV. The problem with it really takes root when what once felt like luxuries begin to feel just like a part of normal life—something you deserve and would be unhappy about going without.

The big picture

Without a view of your larger financial picture, lifestyle creep can lead you down a dangerous financial road. That’s because, while you would like to think that your income will grow along a steady and upward trajectory, recent research tells a different story.

The National Longitudinal Survey of Youth (NLSY) surveyed nearly 10,000 Americans since they were teenagers in 1979. The U.S. Bureau of Labor Statistics survey revealed the greatest growth in income (adjusted for inflation) for most Americans takes place in their early 20s. Specifically, adults between the ages of 18 and 24 (and particularly college graduates) enjoyed an average increase in earnings of 6.4% per year. While income did continue to grow through their 30s and 40s, it was at a much slower pace. By the time respondents reached their late 40s and 50s (the last time they were surveyed in 2014) their income had pretty much plateaued. In fact, those with just a high school education saw a slight decrease in earnings.

Armed with this perspective, below are few ways to keep your lifestyle creep and your bank account in check as you navigate a lifetime of income changes.

Profit from your frugal standards

Being accustomed to living frugally is one of the best guards against lifestyle creep. Sure, if your salary increases by, say, 5% you’ll be tempted to increase your discretionary spending. However, consider giving yourself just a percentage of that raise (say, 3%) and allocating the rest of it to savings. Alternatively, consider increasing your discretionary income by 1% for the next 3 years. That way you’ll avoid reaching that lifestyle plateau and instead feel as if you are regularly receiving a reward.

Find the highest value for your money

A dollar is a dollar, but the value you get for it varies depending on your priorities. Be intentional about how you want to allocate any extra money that comes your way instead of just spending randomly as things come up. Everyone has different pleasures they consider a priority:  delicious meals, awesome vehicles, home improvement, exotic travel or the latest in technology. Know ahead of time what expenses will really optimize the quality of your life and what you consider the most valuable use of your dollars.

Equally important, take stock of your financial pain points: Student loans? Credit card debt? A sparse emergency fund? Know in advance where you are financially vulnerable by asking yourself what keeps you up at night? Then auto-deduct greater payments when that cash appears. That way you will release yourself from the stress of having to decide to stash that money away each month.

Assign every dollar toward a goal: savings, long-term goals, monthly necessities or splurges you have decided upon in advance.

Don’t let greater income result in greater debt

After that raise comes through, you may suddenly notice an increased credit card limit or receive offers for a home improvement loans from banks. Keep yourself in check by only upgrading to luxuries that you can easily reverse should the money disappear. When you spend your extra cash on fancy meals and services like lawn care, for example, you know you can cut back should you need to (unhappy as you may feel about it). Conversely, if you tie yourself up in larger car payments or take on a hefty new mortgage, you set yourself up for financial insecurity. Avoiding lifestyle creep isn’t just about being careful about spending the money you have in hand. It’s also about avoiding spending yourself into greater and greater debt.

Maintain your attitude of financial gratitude

Simply said: a solid sense of gratitude is the best way to hang on to that otherwise fleeting feeling of being newly flush. As this Forbes article reports, a study out of Northeastern University found participants who were asked to think about something they are grateful for were better able to delay financial gratification and, thus, receive a larger payout than those who hadn’t been prompted to be grateful. As Forbes put it, “Gratitude encourages patience—and, thus, a more forward-focused outlook when it comes to your money.”

Focusing on what we already own keeps us from constantly striving to possess more. It also can help us remain resourceful. When we’re content with what we have, we will be more likely to, for example, repair an appliance instead of upgrading it or take a perfectly good blazer to the tailor instead of tossing it in the charity bin and going out to buy a new one.

Keeping a gratitude journal or setting a “gratitude alarm” are just a few examples of practices that can keep your head out of the clouds when it comes to our financial expectations. There is solid evidence that more money only increases your happiness up to a certain point. If what you are really striving for in life is to be happy, keeping your perspective about what you want versus what you need is your best bet.

Remember, the greatest luxury is peace of mind

Knowing that your income is unlikely to grow at a steady pace, consider the fact that allocating your extra funds toward your student loan debt may save you thousands of dollars in interest down the line. Sure, paying off debt is hardly a beach vacation, but is the first step in financial security and building wealth.

Similarly, investing in your retirement while you are young will increase your net worth exponentially by leveraging the power of compound interest. If you’re nearing the end of your career, remind yourself that buying a new hot tub or tricked out RV is money you’re denying yourself to live on after retirement. After all, what you don’t spend today, you will get to spend later.

Avoiding lifestyle creep takes restraint and budgeting. With the right perspective, you can enjoy your higher income now while keeping your financial future in mind.