What Is Lifestyle Creep?
Lifestyle creep is when your standard of living rises alongside your discretionary income—and soon enough, former luxuries become new necessities. It happens little by little, without you really realizing it: it sneaks ("creeps") up on you.
Key Takeaways
- Lifestyle creep is what happens sometimes when you make more money: you spend more money.
- It happens slowly, without you really realizing it.
- The downside of this creep is that when your income decreases—such as with unemployment or in retirement—you might run out of savings as you continue this lifestyle.
Lifestyle Creep Explained
With lifestyle creep, it's not just that you're spending more money. It's that it sneaks up on you, and since you don't realize it, you're not really enjoying it.
Some examples of lifestyle creep might include:
- Eating out or getting food delivered so frequently that it doesn't feel special anymore
- Filling up your closet with so much stuff that it becomes overwhelming
- Buying stuff you don't really enjoy on Instagram and TikTok
- Buying video games you don't play, or media you don't watch
- Having so many subscriptions that you can't enjoy them all
- Buying or renting more house than you actually enjoy
- Sinking so much money into a hobby or travel that it doesn't feel worth it anymore
To fight lifestyle creep, try to use a budget. Another tip: try to distinguish between what you want, vs. what you actually need.
Lifestyle Creep and Near-Retirees
Lifestyle creep can affect those who are approaching retirement. Some people five to 10 years before retirement are in their peak earning years and might have already paid off their longstanding recurring expenses, such as a mortgage. With this new discretionary income, their standard of living may inch up without them realizing it. They might go for a more expensive vehicle or a pricier vacation without really thinking about why.
Since one goal in retirement is to maintain the lifestyle one has become accustomed to in the years preceding retirement, a retiree who's experienced lifestyle creep may require more funds to support their new lifestyle. They might find that they lack the resources to do this because they have spent their surplus cash flow, rather than saved it for retirement.
Lifestyle Creep and Younger Savers
Lifestyle creep can also be felt by younger consumers, such as when they land their first well-paying job. They might start buying things that were previously out of reach, without really noticing it happening. This can make it harder to buy a first home, save for retirement, and pay down student debt. To combat this, consider using big life goals as a guide to how to spend money—and try to make a budget.
What Is a Budget?
A budget helps you figure out how you will spend your money each month. It also helps you track how much you're spending.
To make a budget, you need to know exactly how much is coming in, and how much is going out. First, list your income (how much you make) and expenses (how much you spend). Subtract your expenses from your income.
To do this, you'll need to study your checking account. If you have any credit cards, you'll need to check your recent activity, typically over the last month. One way you can track your expenses is by using a budgeting app.
Your goal is for the result to be positive: for you to have money left over. (You can save what's left over, or allocate it to your spending categories.) If the result is negative, then you'll need to cut some of your expenses until the result is positive.
After this exercise, try to follow your budget for the next month. If you overspend in one category, try to underspend in another, so it evens out. It can be very difficult to follow a budget, but it's worth a try.
What Is the 50/30/20 rule?
The 50/30/20 rule is a budgeting method. It states that when you get paid, 50% of your paycheck (your after-tax income) should go toward needs, 30% should go toward wants, and 20% should go toward savings.
What Is the 70/20/10 Rule?
The 70/20/10 rule is a budgeting method. It suggests the following for your net (after-tax) income: 70% should go towards living expenses, 20% should go towards savings, and 10% should go towards donations.
One downside of this method is that it doesn't distinguish between wants and needs. They are grouped together in the 70% segment.
What Is the 40/30/20/10 Rule?
The 40/30/20/10 rule is a budgeting method. It recommends that you divide your paycheck (after-tax income) this way: 40% should go towards needs, 30% should go towards wants, 20% should go towards paying off debt or savings, and 10% should go towards other financial goals, such as charitable giving.
What Is the 60/20/20 Rule?
The 60/20/20 rule is a budgeting method. It says you should segment your after-tax income this way: 60% should go towards needs, 20% should go towards wants, and 20% should go towards your savings, such as creating an emergency fund that equals three to six months of your expenses.
The Bottom Line
Lifestyle creep is what happens when you start making more money, and your standard of living rises along with your income. Instead of sticking to your former way of life, you begin spending more money—slowly, without you really realizing it. As your income improves, so does your lifestyle. This may not necessarily be a bad thing, depending on if you can afford it. But be mindful of your spending. Are you enjoying it? Or is it, well, creeping up on you?
