What do you do when you get a raise? If you’re like most people, you’ll most likely splurge on some nice things. Perhaps designer shoes, subscribing to a gym membership with a trainer, going on vacation, switching to organic vegetables, etc.
While it is good to treat yourself when your income increases, it is usually a slippery slope. Most people find themselves making former luxuries a necessity. This is referred to as lifestyle creep.
It happens when an increase in discretionary income is accompanied with discretionary spending. The spending is usually on non-essential goods and services or luxury items. How do you protect yourself from a lifestyle creep?
This article will show you 5 ways you can protect yourself from lifestyle creep and have you do better when your income increases.
1. Create a Budget
The adage goes, the best defense is a good offense. Creating and maintaining a budget is the best offense for protecting yourself against lifestyle creep. To make a budget, first, calculate your take-home pay.
Focusing on your gross salary will make you think you have more money to spend than you do. By calculating your take-home, which is your gross income minus taxes and other deductions, you’ll know exactly how much money you have for spending.
Once you’ve established your take-home, use the 50/30/20 rule to come up with your budget. 50% of your income should go to your needs, i.e. rent or mortgage, groceries, utilities, and car payments. 30% wants, i.e. shopping, streaming services, vacations. 20% to savings or debt like credit card payments, paying emergency funds, retirement, college fund, etc.
After creating your budget, write your biggest financial aspiration. This will usually be a large ticket item, like buying your home, retiring early, or paying for your kids’ college. With this goal identified, direct your raised income into it.
Over time, you’ll be able to look back and see what your increase in income has accomplished. It will motivate you to stay on the right track with your money and achieve even loftier financial goals.
2. Keep Tabs on Revolving Debt
After an income increase and you’ve updated your credit information, your credit card issuer is likely to reach out to you and give you a higher credit limit. Although it gives you more spending power and keeps your credit utilization low, there is a high chance of you spending more on immediate consumption.
Whether it be on discretionary items or necessities, this will certainly slip you into a lifestyle creep. To avoid this, keep a lid on your revolving credit card debt. If you have immense credit card debt already, make sure you pay at least the minimum on your cards, and then move on to pay the total balance with your discretionary income.
3. Be Around Like-Minds
Most likely, you make your personal financial spending choices alone. However, being that you live in society, you have relationships that impact you financially. It could be family, friends, colleagues, or even neighbors.
If these relationships are not with financial-like minds, you’ll likely get into some sort of lifestyle creep. For example, if your friends go to happy hour every day, you’ll find yourself inclined to join them. What would be the harm, as you have the discretionary income?
Unfortunately, this would likely lead you down a sprawl financially and hurt you in the long run. Therefore, make the effort to surround yourself with people who have the same financial aspirations as you to avoid getting into a lifestyle creep trap.
4. Avoid Social Media Pressure
While social media has its positives, one of its major undoing is social media pressure. Unfortunately, people want to live the lives that they see on social media. The downside is that, if you cave in to this pressure, you’ll live a life above your means.
To avoid falling into a lifestyle creep because of social media pressure:
- Avoid content that pressures you to fit into a socioeconomic lifestyle higher than your income ability
- Remind yourself that content on social media doesn’t represent real life
- Limit the time you spend on social media
- Change your value system and put more focus on self-admiration and self-acceptance rather than looking for admiration and acceptance from others
5. Treat Yourself
After creating your budget, avoiding social media pressure, keeping with like minds, and avoiding debt; the last thing you should do is treat yourself. Set a small “treat” fund that you can spend on yourself and appreciate yourself.
It may sound frivolous, but having a treat energizes you and helps you maintain your healthy habit of not falling into lifestyle creep. Depriving yourself totally will push you into a crummy state of mind where you will want back balance and tell yourself, “I’ve earned this”; “I need this”; or “I deserve this”.
Before you know it, you’ve slipped into lifestyle creep to restore the balance. When you don’t treat yourself, you’ll quickly feel resentful.
How to Reverse Lifestyle Creep?
If you’ve succumbed to lifestyle creep, there is saving grace. You can reverse the trend and go back to healthy financial habits. To get started:
- Audit your spending: To cure yourself of lifestyle creep, you have to first identify where your money goes. Take stock and write, week to week and month by month, how much you’ve been spending your money. It will point you to what unnecessary things you’re spending on and where to course correct.
- Sell your unwanted stuff: As income rises, people buy more “stuff”. Look around your home, declutter things you no longer use, and sell them online.
- Save automatically: One way to reduce the amount you have access to spend is to save automatically. Before you get your money, you can ask your employer to deposit some money into your savings account, 401K, etc. If this option is not available, set it up yourself. The goal is to have you live off less than you do right now.
- Be proactive in your choices: Think about how you’re spending your money. It will put reins on your spending habits and protect you from falling into a lifestyle creep.
An increase in income is a celebratory time. The urge to spend the earned money is too high, and most people succumb to it. To protect yourself from this natural impulse, ensure you are proactive and use the above tips to protect yourself from a lifestyle creep.