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Why 'lifestyle creep' is a slippery slope for our finances

Lydia Smith
·Writer, Yahoo Finance UK
·4-min read
Mädchen die Einkaufen waren
As your wage goes up and you get used to a more expensive way of living, you could fall prey to 'lifestyle creep' and end up in debt with maxed out credit cards. (Getty)

You’ve got a promotion and you are moving on up. For the first time in years, you’re able to eat out more, buy new clothes and even upgrade to a bigger flat in a nicer area. Instead of surviving on ramen noodles and toast, you’re able to order sushi.

As you earn more, it’s normal to spend more. After all, you worked hard to get a raise — and it’s only fair to treat yourself for your efforts. Sometimes, though, this kind of thinking can get you into trouble — and it’s easy for your finances to get out of hand.

Lifestyle creep, or lifestyle inflation, is something that many of us fall prey to without realising. The term refers to the gradual increase of your spending as your wage goes up. Before you know it, you’re spending more on things that you once considered luxury items — like buying a new outfit — and it soon becomes the norm. And even though you’re earning more, you still end up struggling for money at the end of the month.

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The problem with lifestyle creep is that it can sneak up on you. As you get used to a more expensive way of living, you may end up in debt with maxed out credit cards. It also doesn’t take into account that your living costs such as rent and bills are likely to be increasing too, so you may not have as much disposable income as you think.

So how can you avoid lifestyle creep — and make smarter decisions when it comes to your finances?

Treat yourself wisely

Treating yourself is fine, but it’s important to try and be mindful when it comes to spending. Mindful spending doesn’t have to mean depriving yourself, but it means thinking twice before getting out your credit card and impulse buying items you’ll regret later down the line.

Before buying something, take a step back and ask yourself whether you really want or need the item. Ask yourself whether you can afford it without any regrets, or if the money could be put towards something else. You may decide to go ahead with the purchase, or you may change your mind. Either way, it’s better to put more thought into your spending habits.

Recognise lifestyle inflation

It can also help to recognise when you’re struggling with lifestyle creep. Keep a spending diary for two weeks and make sure to include everything you purchase, including minor expenditures like coffee or sandwiches. You may find that you are eating out far more, getting takeout coffees every day and spending more on clothes, or choosing more expensive items when food shopping.

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Think about how much money you are spending and how this compares to a few years ago — and if every purchase is necessary. Once you’re aware of how much you are spending, it’s far easier to cut back.

Create a budget with a treat fund

When you’ve worked out how much you are spending on “fun” items, create a spending budget. Firstly, work out how much you need to pay your rent, mortgage, utilities and internet, as well as other monthly outgoings like Netflix and Spotify. Set aside a certain amount for food and essential items, like toiletries and medications.

Once you’ve worked out how much you need for these things, create a separate fund for “fun” purchases. You might want to include the money you spend on socialising or eating out, too.

Make gradual changes to your spending

It can be hard to cut back on how much you are spending overnight, but small changes can make a big difference to your finances. It’s particularly easy to overspend without thinking if you tend to pay for everything using debit or credit cards, especially if you’re using contactless payments. It can help to take a set amount of money out for the week, taking into account your travel expenses, food budget, bills and general spending money.

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Whether it is a friend or relative, identify someone who you trust to discuss your financial situation with. They can help you keep track of your spending and dissuade you from blowing your budget on unnecessary purchases. Don’t feel pressured to spend more on nights out with friends — you’ll only feel guilty later on.

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