Managing Lifestyle Creep: A Real-Life Example of Keeping Expenses Low (Even As Incomes Rise)

Image for post
Image for post

The term lifestyle creep describes what happens when you spend more money as you earn more money.

You might also hear this referred to as “lifestyle inflation. It means the same thing: you inflate your lifestyle to match your income. There’s never much of a gap between what you earn and what you spend.

If you fall victim to this, you will likely never feel well-off, wealthy, or successful. You rob yourself of the opportunity to grow real wealth if all your money goes out the window before it can grow and compound.

This is how those articles about people making $500,000 but still feeling poor make the rounds.

You’d feel broke, too, if you made $500,000… but spent $500,000 a year on housing, childcare, education costs, cars, insurance policies, bills, and other expenses.

It might sound outrageous, but you can probably relate more than you think you can. Think back to when you first started your career. Maybe you made $50,000.

At the time, you probably had your sights set on making $90,000 to $100,000 one day. Double your salary! Once you made that amount, then you’d feel wealthy.

Only, you probably did eventually earn $100,000 as your career progressed. And, soon after, you also probably started thinking, “if only I made $150,000, or $200,000, or…”

I see it happen over and over again to otherwise successful, smart, could-be-well-off people. Why? Because managing lifestyle creep is hard.

Blurring the Line Between Needs and Wants

Recency bias might play a role in why managing lifestyle creep feels so difficult.

It’s human nature to focus on what’s happening right now; most of us tend to forget the distant past and struggle to realistically imagine the distant future.

So if we only focus on right now, we may struggle to remember all the things we have in life today that, in the past, were luxuries, novelties, or things we could only dream of.

This makes it hard to maintain an objective line between “wants” versus “needs.” When your income increases, what you “need” tends to expand simply because you can actually afford it whereas in the past it might not have even been an option.

I think about this often when we go to the grocery store or a place like Target. When I was fresh out of college in my early twenties, I remember thinking buying a new bottle of spices was a luxury — a want, but not a need, because entire bottles were expensive!

I couldn’t just buy 5 different spices when a new recipe called for a lot of little things I didn’t have. So I went without. I didn’t need it to cook the recipe; I’d just skip it or try to sub in something I already had in the pantry.

Today, if a recipe calls for an obscure spice or ingredient we don’t have, we don’t even think about heading to the store and tossing it in the cart. It’s groceries, after all — and aren’t those a need?

This is just a tiny example of how our thinking shifts… but this is exactly why managing lifestyle creep is difficult. This kind of shift happens everywhere in our lives, from small purchases to really big ones.

Those “big ones” include things like cars and houses and vacations, and it’s these massive (and often fixed) expenses where lifestyle creep can get you into the most trouble.

Managing Lifestyle Creep Will Make You Feel (and Actually Be) Rich

Let’s go back to that idea of a gap between what you earn and what you spend for just a moment. The bigger this gap, the more extreme your financial situation will be — for better or worse.

If your spending far outpaces your income, then you’ll end up in the red, in debt, and struggling to dig yourself out of a very unpleasant financial hole.

Not a good situation.

But if your income is far greater than the amount you spend, you create an excellent financial situation. This is a fundamental part of the right formula to create real wealth.

You do have to do more than just “make more than you spend.” One smart step is making strategic investment decisions to further compound your money.

Bottom line, however, is that creating that gap in the right direction (income > expenses) is a key first step to take. After all, only by maintaining that gap do you have enough available funds in your cash flow to allocate to things like saving and investing.

And not only will the gap literally give you the money you need to save and invest — but it’s going to make you feel wealthier, too.

That gap is the flexibility and choice to use your money the way you want to, on what matters most to you (instead of feeling obligated to use it to maintain expenses or pay off debts).

Managing lifestyle creep means managing that gap. Both are the key to feeling and being wealthy.

It probably goes without saying, though, that this is far easier said than done.

What parts of your lifestyle should you manage, anyway? How are you supposed to cut back if expenses already inflated along with your income? Where have you blurred the line between want and need?

I’ll use myself as an example to show how we recently made some decisions to better manage lifestyle creep in our own lives by changing up an expense most people assume is inflexible and set: our housing costs.

A Real Life Example of Managing Lifestyle Creep to Increase the Gap Between Income and Expenses

When my girlfriend (and now wife) and I moved in together, our first apartment was a small brownstone apartment in Boston’s South End. It was nice enough — but nothing fancy and minimally furnished with hand-me-down furniture.

The nicest part about it was our landlord never raised our rent in the 3 years we lived there. Staying put was like built-in lifestyle creep management.

Our incomes went up; our rent stayed the same. As the gap between earnings and expenses increased, we added the new money in our cash flow to savings and investments.

Eventually, however, we decided to move to a new location in the city — and the gap in income and expenses had grown so much that we felt we could increase our rent without negatively impacting our ability to keep saving and investing.

We chose a new home with a higher rent, but the way we continued to manage lifestyle creep in that situation was to reduce some other fixed costs. Kali dropped her coworking membership and chose to start working at home, for example. This helped keep our expenses level overall, even as a big one — rent — went up.

When the time came to renew our lease, however, we sat down and looked at our costs, their benefits, and the overall value we were getting from our home. There were many pros, the top being location and convenience.

But the downsides were stacking up.

The convenient location meant we were in an extremely noisy area with lots of congestion and traffic. The surrounding area was less than desirable and lacked the neighborhood-y feel that we got from other places in the city.

And the rent was also going up by 4% if we signed a new lease.

Here’s where the “managing lifestyle creep” part really comes in — we could easily afford a 4% increase on our lease. In fact, we could afford to pay a lot more than rent because we deliberately keep our housing costs to a very low percentage of our overall income.

But we wanted to make a mindful choice to lower one of our biggest fixed expenses, and to choose to replace that expense with another that gave us more value for what we paid.

We started searching for other alternatives, and realized that there was a great building literally 1 mile down the road from our current location that was:

  • In a historic Boston neighborhood, like our old place in the South End
  • 150 square feet larger than the place we lived currently
  • Quieter, right on the water, and surrounded by green space and trees
  • Offering a lot of amenities, including a full gym in the building, a parking spot that came with our unit, and access to a free shuttle system to get us to a few hubs in the city

…all of this, and it was cheaper than our current apartment.

More value, less price — and moving would free up cash flow for other purposes.

Yes, we could use some of that money we would no longer have to spend on rent to allocate toward savings and investments — and we will!

But managing lifestyle creep isn’t just about “spend less save more.” It’s about creating the flexibility and freedom to deliberately choose what you want to spend on today and in the future.

How to Manage Your Own Lifestyle Inflation

I share this example because it focused around our biggest fixed cost — where we lived. Most people simply assume that their fixed costs are, well, fixed.

And they can be if you’re not careful, which is why it’s critical not to leap into the most-expensive mortgage you can possibly afford (goodbye, wiggle room), or overspend on big purchases like cars.

Make sure that you don’t max yourself out every chance you get, or you will eat away at that gap between income and expenses… and leave yourself feeling stretched, depleted, or downright broke.

If you want to further manage lifestyle inflation in your own life, you can follow other tips we use, too:

Periodically review your spending and transactions. Look for things you no longer use or get value from, and cut those — then add the amount they cost you to your savings instead.

Question your perception of wants versus needs. You might not need to change anything… but you should at least check in every once in a while.

If you feel like everything you buy is a “need,” I suggest thinking back 10 or so years ago when you likely lived without a number of the luxuries you enjoy today.

Again, you don’t have to cut back on everything and live as frugally as possible — but at least consider what you freely spend on right now that you could roll back or at least make into a treat for yourself (rather than a normal, everyday thing).

Be most aware when choosing your biggest expenses that will be fixed (at least for a period of time — even if you rent, you lock in that expense for 12 months!).

These will have the biggest impact on your ability to manage lifestyle inflation or creep in your own life. If you can adjust these, or keep them in check so they never exponentially rise even as your income goes up, you’ll find you have much more flexibility on the day-to-day spending and your ability to save and invest for the future.

Get more financial know-how, insights, and information that you can actually put to use in your life. Check out the blog at Beyond Your Hammock or subscribe to the Beyond Finances podcast.

Written by

#FinancialPlanner helping 30 & 40-somethings build #wealth & think differently about #money • Top #FinancialAdvisor in #Boston • www.BeyondYourHammock.com

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store