Understanding the Dangers of Lifestyle Creep

Young woman admiring her new vase.

When the hard work pays off and you finally get that raise you deserve, a few things are likely to change. You’ve got more money coming in, so it seems inevitable that more money will start going out. Chances are good it will start innocently enough – you eat out for lunch a little more often, upgrade to a slightly more expensive car, and start improving your wardrobe. After all, you’ve got the money.

And that is the danger of lifestyle creep – when we start letting our spending habits billow out of proportion to our income.

What is lifestyle creep?

Lifestyle creep is the gradual increase in spending that often accompanies an increase in income. It's called "creep" because of how slowly it happens. You’re aware that you have more money to work with, so you start loosening up your budget, bit by bit. Where once you may have had a firm grasp on what was essential and what was not, you start allowing yourself to be a little lazy or a little extravagant.

Lifestyle creep is often not simply spending more, but paying less attention to what you're spending. You feel comfortable with your income and that comfort leads you to become less cautious (and conscious) with your money. 

What's dangerous about lifestyle creep?

The trouble with lifestyle creep is twofold. First, because we let our financial guard down, we run the very real risk of letting our spending outpace our income. In other words, we unintentionally adopt a lifestyle we can’t actually afford.

Another risk is that it can be hard to revert backwards to a simpler lifestyle after you’ve gotten used to certain amenities. Downgrading your house, your car, your groceries, and your clothes is much, much harder than simply keeping things in check, especially should you experience a financial setback.

Tips to avoid lifestyle creep

The trick to avoiding lifestyle creep isn’t to pretend nothing’s changed. You’ve got more money! That’s a good thing. If you need to spend some of that money, don’t feel like you can’t or you shouldn’t.

The trick is simply to maintain perspective and not lose sight of your goals. Having more income doesn’t mean you’ve earned the right stop budgeting; it means it’s time to create a new budget. Reassess your finances. Review your goals and see how this change can positively affect those goals.

Use your priorities to help you decide where that extra money should go. Do you have an adequate retirement fund? Are you saving for a house? It’s easy to use an increase in your income as an excuse to be a little lazy and treat yourself, but what’s most important to you? Knowing that makes it much easier to decide the ways your lifestyle should change and the ways it should stay the same.

And if you need a little more help, consider setting a ratio of 50/50, where 50% of your “new” money (i.e. your raise) goes directly into savings and the other 50% can be spent as part of your expanding budget. That way you get to enjoy the fruits of your labor now, while also building your nest egg.

It’s exciting to have more money and there’s nothing wrong with rewarding yourself for your success, but if you take the time to update your budget and stick with your new plan, you’ll see the benefits for years to come.

And if you need help navigating your changing finances, MMI offers free financial counseling. Help is available 24/7, online and over the phone. It's a no-risk, no-judgment way to get expert advice and feedback on your financial situation.

Tagged in Navigating change, Psychology and money

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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