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How to avoid lifestyle creep

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Barry Choi

March 8, 2021
Travel and lifestyle
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Back in 2004, I landed my first full-time job that paid me $40,000 a year. This was a huge accomplishment for me, which came with a pretty big pay bump. Instead of treating myself to something nice with my first big paycheque, I focused on increasing my savings.

I’m not sure why I did this as I didn’t have any personal money rules in place at the time, but my parents have been telling me to save money since I was a teenager, which likely played a role. I didn’t think much of it at the time, but my parents had taught me to avoid lifestyle creep.

This unintentional money lesson has stuck with me throughout my career. Sure, there were times when I had to spend more money, but I’ve kept my expenses low overall. By avoiding lifestyle creep, you can put yourself in a strong financial position without much work.

 

What is lifestyle creep?

In case you’re not aware, lifestyle creep (sometimes known as lifestyle inflation) is when consumers increase their spending/lifestyle in line with their income. In simple terms, as you earn more, you spend more.

For example, someone who gets a small raise may all of a sudden start eating out more or they would start ordering wine with every meal. If they were to get a more significant increase, they would perhaps start taking more vacations or buy a bigger home.

Lifestyle creep isn’t something to be ashamed of, but if you’re focusing on spending more, you may be ignoring your saving goals. Also, suppose your income were to suddenly drop. In that case, it can be difficult for many people to return to the lifestyle they had before.

 

How to avoid lifestyle creep

Avoiding lifestyle creep is simple in theory. Keep your expenses the same regardless of how much you make. However, most people end up spending more because they tell themselves they can afford it. While this is true, spending more means you’re reducing how much you can save.

That’s not to say you should continue to live like a student on a fixed income, you just want to keep your spending relatively the same. For example, I can afford to shop at nicer grocery stores, but I still prefer to shop at the discount ones where things are cheaper. Even though I can afford a luxury car, I purchased something that was half the price since it was just as practical.

Keep in mind that sometimes it’s necessary to spend more. I went from living at home rent-free to paying $1,200 a month in rent. When my wife and I purchased a home, our monthly living expenses also went up.

There’s nothing wrong with spending a little more as you earn more but putting an emphasis on increasing your savings rate will likely help you more than anything you could buy. That extra savings could be used to help you get out of debt or purchase your first home.

 

Pick what’s important to you

Although the emphasis on avoiding lifestyle creep is to keep your expenses down, spending on things that are important to you can bring you meaningful value. My wife and I love to travel, so we slowly increased our travel budget as our salaries went up. We eventually agreed to a reasonable amount to spend on travel every year and haven’t raised our vacation spending since then.

Some people may also take avoiding lifestyle creep a little too seriously and find it challenging to spend money at times. Why buy a new car when you can continue to drive your 15-year-old vehicle with 250,000+ kilometers on it, right?

There are times where spending on things that you can afford is probably the most reasonable solution. Being smart with your money is a noble cause, but that doesn’t mean you need to count every penny or always choose the cheapest solution.

 

Final thoughts

Even though my income has increased quite a bit over the last 15 years, my monthly expenses are still similar to when I got my first full-time job. Since I’ve focused on saving, I’ve felt no real guilt whenever I decided to make a purchase that brings me joy.

 

 

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Barry Choi - Author bio

Barry Choi is a personal finance and travel expert who makes frequent media appearances in Canada. You can follow him on his personal site at moneywehave.com or you can reach out to him on Twitter: @barrychoi