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How ballooning lifestyle creep can carry you away.

Congratulations on your recent income boost!

Whether due to a well-deserved raise, a six-figure job offer, or a generous contract with a dream freelance client, the extra take-home pay could let you finally live a little. While there’s nothing wrong with enjoying the fruits of your labor, inflating your spending habits to match your new income might cause a bright financial future to fade away. Spending to the detriment of saving, known as lifestyle creep, can happen to anyone in this situation. Here’s how to avoid falling into this trap.

What is lifestyle creep?

Lifestyle creep can occur each time there is an increase in income. A significant amount of the extra money is used to pay for unnecessary living expenses and nonessential items, while little or nothing is set aside for savings. Examples include buying a larger home or newer vehicle because they are nice-to-haves, not necessities. Ignoring savings during high-income earning years makes it difficult to save for retirement or build a robust emergency fund savings account.

Three signs of lifestyle creep.

It’s easy to justify financial splurges. After all, setting time and money aside for play could help you maintain a positive mindset. However, when justification leads to overspending and a decrease in savings, people often lose sight of their long-term financial goals.

Ask yourself three simple questions to help determine whether you need to rein in spending:

  • Am I spending more on entertainment, clothes, or household comforts?
  • Did I forget to use some of the money to increase my monthly or annual savings?
  • Have I decreased my annual savings goals so I can afford a new expense?

Your answers can help you reassess your spending and balance your budget so it aligns with your financial goals.

How to avoid lifestyle creep.

Despite how it might feel, lifestyle creep is not an inevitable part of earning more money. Households that adopt the following money habits are more likely to avoid harming their financial future with each bump in income:

  • Keep financial goals at the forefront of spending decisions to help you stay focused.
  • Pay yourself first by depositing a percentage of your income into savings before adding new expenses.
  • Pause at least 24 hours before making impulse buys so you can decide whether the purchase will be worth it in the long run.

At the root of lifestyle creep is FOMO, the fear of missing out. It is a feeling that other people are living a better life than yours. Resist the temptation to compare yourself to others since it could spur you to overspend. This might require that you reduce social media usage or start a gratitude journal.

Deflating lifestyle creep.

If you fall into the bad habit of lifestyle creep with each incremental boost in income, you can turn your situation around without too much difficulty. Balancing spending and saving starts by defining or revising your money goals, given your new financial reality. Also, consider deflating lifestyle creep by:

  • Allocating a higher percentage of your overall income to savings, which might lead to you needing to save less overall to meet your long-term financial goals.
  • Reducing the number of subscription services or delivery frequency to still enjoy the perks while lowering expenses.
  • Choosing two low- or no-cost entertainment activities for every higher-priced experience and depositing the difference into savings.

Budgeting remains key to successful money management, despite income. Following a simple budget, like the 50/30/20 method, encourages users to divide their after-tax income into three categories: needs (50%), wants (30%), and savings (20%).

  • Needs = necessary daily living expenses like housing, groceries and transportation costs
  • Wants = optional expenses, like entertainment and nonessential spending
  • Savings = money earmarked for an emergency fund savings account, retirement savings, large purchases, or debt reduction

This easy-to-use system doesn’t require complicated calculations. Plus, additional bumps in pay only require minor tweaks to this type of budget. Discover more ways to effectively manage your finances by searching Ideas & Tips.

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