Lifestyle Creep: How to Avoid the Biggest Threat to Your First Million

What do your bank account, trading account, and retirement account have in common? The numbers are never as high as you thought they were. If you’re making decent money but still find your future funds falling short, there could be a simple solution. Let’s take a look at how to avoid lifestyle creep and reverse the effect is has on your future financial well-being.

TABLE OF CONTENTS

• What Is Lifestyle Creep?
• Common Examples of Lifestyle Creep
• 10 Ways to Stop Lifestyle Creep (and Prevent It From Happening Again)
• We Can Help Put You on the Right Track

What Is Lifestyle Creep?

Lifestyle creep, or lifestyle inflation, happens when people start spending more just because they’re earning more. Whether it’s sheets with a higher thread count or first-class airfare, you’ve slowly started buying things you didn’t consider before.

Lifestyle creep can happen at any age but is particularly likely to strike:

• After college. Many young people make expensive mistakes when they land their first decent-paying job. Instead of finding a roommate or buying a secondhand car, they rent an overpriced apartment and a gas-guzzling roadster. This can make it tougher to save for big goals like buying a home, tackling student loans, or building a retirement fund.
• In middle age. You start paying off big purchases, the kids move out, and you keep moving up the ladder. You finally have some breathing room to take those vacations or make upgrades you’ve talked about for years. But lifestyle creep can sneak in if you don’t keep an eye on your spending as your income increases.
• Before retirement. As you approach retirement, you may earn a considerable salary and have fewer ongoing expenses, like a mortgage or credit card debt. This newfound cash can lead to higher spending on things like fancier cars or more expensive vacations, often without realizing it.

Common Examples of Lifestyle Creep

Lifestyle creep is sneaky, gradually influencing your purchasing decisions until you’re losing thousands of dollars a year. Here are some common signs that your income is controlling your spending:

• You’ve moved to a larger or more luxurious home because you can afford the higher rent or mortgage.
• You subscribe to multiple streaming services, meal kits, or premium memberships that you didn’t have before, leading to higher monthly expenses.
• You immediately upgrade to the latest smartphone, laptop, or other tech gadget, even when your current ones are still functional.
• Your budget-friendly trips have become lavish vacations in exotic locations, often with added amenities and experiences.
• Your spending on clothing and accessories has increased, and you may find yourself shopping out of boredom.
• You’re still racking up debt on credit cards or store cards.
• You’re paying for more services, such as spa treatments, hair appointments, manicures, or fitness memberships.

10 Ways to Stop Lifestyle Creep (and Prevent It From Happening Again)

Fortunately, it’s never too late to reverse lifestyle creep. If your overspending is stopping you from making your first million or threatening your golden years, there are a few steps that can help:

1. Take Stock

The first step is to study your spending habits. Track your purchases and account balances over a few months to get a clear picture of where your money is going. Once you have a typical period of time to use as an example, categorize your expenses into essentials (rent, groceries, and utilities) and discretionary spending (dining out, shopping, and entertainment). The extra spending that crept in is suddenly thrown into the spotlight.

2. Pick Your Budget

Budgets are the easiest way to keep overspending and debt from worming back into your wallet. There are plenty of budgeting apps to help you visualize your goals, often with scalable options if you want to put more in your accounts (Option A has you retiring in 20 years, Option B in 25 years, Option C in 30 years, etc).

3. Trim Your Waste

Recurring payments can nickel-and-dime your income significantly. Consider which of your monthly streaming services, subscriptions, or memberships you’re actually using and which you can live without.

4. Examine Your Non-Negotiables

You’ve earned a few luxuries in life, but do you want imported cheese more than you want early retirement? If you’re a foodie, maybe frommage is worth another year behind a desk. However, be smart about choosing your can’t-live-without perks: set a number of items (or dollar amount) and stick to it.

5. Target Revolving Debt

If you have a credit card or other unsecured debt, begin by paying off accounts with the highest interest rate and work down to lower-interest debts. Once they’re paid off, it’s up to you whether to close the accounts. Keeping them open is better for your credit, but if they’re too tempting, it’s not worth the risk of racking up debt again.

6. “Spend” on Your Savings

Commonly called the “pay yourself first” approach, this method removes any temptation to overspend by transferring earnings into savings or retirement accounts automatically. If you need more motivation, change the name on each savings account to its specific goal. It’s much more rewarding to put money toward Switzerland Ski Vacation than it is toward My Savings.

[Pro Tip: This is one of the BEST ways to reset your business operations. It was popularized in the book, Profit First.]

7. Rise to the Challenges

Living within margins requires creativity. If you grew up with fewer resources than you have now, you may already have these skills in your DNA. Cooking, sewing, gardening, and arts and crafts can all reduce costs and make everyday items go further. Best of all, they involve the whole family, teaching kids about responsibility and self-reliance early on.

[Pro Tip 2: It’s that kind of a week. Buy Back Your Time is another book well-worth the read. Managing money is one thing. If your business requires you to trade your time for money; how could you ensure that you’re only doing those tasks that are at your highest value and best use? What could be delegated to someone else that would allow you to focus more time on the tasks that matter most?]

8. Ignore Influencers

You might also consider avoiding the influencers on social media who are constantly trying to sell you things. Influencer marketing is a massive business and can easily make you spend hundreds of dollars on products that you don’t actually need.

9. Get Ahead of Burnout

You’re doing everything you can to prevent lifestyle creep. It only takes a few months of turning down nights out and avoiding shopping trips before you start to feel resentful of the “no fun” lifestyle. Plan ahead for these wobbles so you don’t make an expensive impulse purchase you’ll regret later.

Be mindful when choosing your “splurge” gift. It doesn’t have to be expensive to give your brain the reset it needs. If you really miss restaurants, have a meal at one of your favorite places with a friend. Something that adds value to your everyday life is another good option, like a new coffeemaker or grocery delivery service.

10. Forget the Joneses

Stop comparing yourself to other people, period. Instagram isn’t real life, and an outward show of wealth doesn’t guarantee happiness. For that matter, present wealth is no guarantee of future wealth. If it were, I’d be out of a job.

We Can Help Put You on the Right Track

At Yolofsky Law, we help people improve and achieve financial success every day. If you need help protecting your business, creating an estate plan, or need a trusted legal advisor, email us at hello@yolofskylaw.com today or schedule a 15-minute call to get answers to your questions.