I’m talking about Lifestyle Creep. That’s where your Standard of Living increases as your Discretionary Income rises. Former luxuries are now considered necessities.
LIFESTYLE CREEP EXAMPLES
That occasional Starbucks Latte becomes a daily habit. You begin eating out more frequently instead of bringing your lunch most days. You buy a bigger house because you got a raise.
Lifestyle Creep makes it harder to get out of debt, save for Retirement, or meet other Big Picture Financial Goals. It’s what causes people to get stuck in the Rat Race just to pay the bills. Lifestyle Creep can rob you of the cash you might need to fall back on when an unforeseen setback like a medical bill or job loss arises.
WHY WE DO IT
We tend to increase our spending each time our income goes up because we believe that the additional goods and services we are purchasing will make us happier. Often, those purchases don’t make us happier. A better option would be to work toward Financial Independence by saving more.
The cumulative impact of Lifestyle Creep is significant because increases in Lifestyle Spending not only means there’s less money to save, but also that higher Lifestyle Spending means we need even more to Retire in the First place!
HOW TO AVOID LIFESTYLE CREEP
1. Increase your Contribution Rate to Retirement Accounts like IRA’s, 401k’s, 403b’s. Sign up for your plan’s Auto-Escalation feature. Money not seen is not missed.
2. Save Half of any Raises or Bonuses in your Retirement Accounts.
3. Save the maximum amount allowed in your Health Savings Account.
4. Set a Savings Challenge for yourself. Make Saving a “Point of Pride.”
5. Track your Expenses.
Avoiding Lifestyle Inflation can mean achieving Financial Independence at a younger age, having the Financial Flexibility to choose a Dream Job over a higher-paying option, and Retiring Early! After all…Who wants a Creep in their life?
So, what do you think? Where do you see Financial Creep in your life? How do you combat it?
