How to Avoid Lifestyle Creep

New Orleans, US

Lifestyle creep is a more palatable way of saying as your income increases, so do your expenses. To build long-term wealth and save for shorter term, but just as important, goals you want to do the opposite: Increase your income regularly, and keep your expenses as low as possible. How I do this is by keeping my spending the same as before the raise or picking up a side hustle(with some exceptions*).

Here’s how I avoid lifestyle creep

1. Putting the extra money out of sight: a separate, an online only bank account is my personal favorite. Since it takes a few days to transfer funds from my Varo account to my main account, I just leave my card at home and don’t have the details saved anywhere, so if I want to spend the “extra” money, it’s a hassle, which works as a pretty good deterrent.

2. Having a specific dollar goal for the income increase: Are you saving for a house(I am… slowly)? An international trip? Do your want to pay down a big chunk of some debt? Earmark the money so it’s not rolled into your day to day budget.

3. Reviewing my budget: The beginning of a new quarter is the perfect time to analyze spending habits for the last 60-90 using your bank and credit card’s spending reports. Seeing if and where expenses can be reduced and/or money can be shifted to new priorities helps so much in ensuring that my income increase remains earmarked for the goals I set for it.

As I get further into my late twenties, and get closer to moving into my dream career field, I know that a large income increase is forthcoming. I want to make sure when that happens my money habits are so ingrained that if I'm making $75,000 or $225,000, my expenses remain more or less the same, so I can focus on building lasting wealth for myself and my family. Avoiding lifestyle creep is one of the most effective ways to do that, in my opinion.

*Why with exceptions: I don’t think life is very fun if you’re only earning and saving. In line with my personal money philosophy, I think it's important to spend on planned experiences that make bring joy and fulfillment… as long a you budget for it. So take that international trip, skydive, ride the hot air balloon, get the new tattoo… maybe just don’t do all these things in a six month span.

Budgets are Meant to be Adjusted

It happens to all of us, you sit down with your budget and plan for the quarter, month or week… and you get an email from your favorite brand that there’s a 35% off sale, so your $150 shopping budget ballooned to $300 because, you can definitely afford it, so why not? Then the end of your budget period comes you’re over budget every where except savings. I get it, it happens to me(more than it should considering a run a personal finance blog, but that’s life.) The important thing to do is to have that financial check in, hopefully sooner rather than later, but at some point before you sit to edit the next iteration of your budget is fine.

If this is a one off, then its an easy fix, and you can easily adjust your flexible categories(like cafe money, shopping money, and take out money) to even out the fixed ones like your savings that may have fell a little short on your last go round. However if you find that this is the second, third or fourth time you’ve blown through the same category and borrowed from others, perhaps it’s time to rethink your budget.

In an ideal world our budgets would stay at the percentages we wanted and we would hit those goals every quarter/month/week, but as our priorities grow alongside us, we have to edit our budgets to reflect that growth. For me, I know I’ve been spending more on physical books now that I don’t want to use the library as much, and that’s ok, since I’m spending a lot less on clothes and cafes since I’m leaving the house a lot less. Reading has become an even bigger part of my life during this pandemic so I’ve had to adjust my budget to reflect that it has made me happier(and made me much more likely to stick to my budget.)

As March comes to a close, I am definitely re-examining the financial goals I set forth at the beginning of the year and seeing how that compares to my spending. I pretty optimistically thought a new administration would mean a (relatively) swift transition into our new normal and with it increased earning potential(I work in the service industry, specifically restaurants, as I am pursuing my degree and it has been tough, to say the least), unfortunately, that doesn’t seem to be the case for my city. Taking that into consideration I’ve heavily revised my financial goals for the year, generally, but specifically for the second quarter.

Give yourself some grace if your spending is not matching your budget, assess why that is and adjust accordingly. We have 75% of the year to go, we can still meet and exceed the revised (and perhaps more realistic) financial goals we’ve set for ourselves.