3 Practical Strategies To Help You Avoid Lifestyle Creep

If you’re not careful, lifestyle costs can really sneak up on you. It’s kind of like monitoring your diet. We might indulge in too many cheat meals, unexpected desserts, and after-work happy hours, which initially seem harmless. However, one day, we catch our reflection in the mirror and think, “Jeez, I’ve really put on a few.” Been there, done that! Letting our habits run wild is something that many of us have experienced in some way, shape, or form, and surprisingly, our finances can follow the exact same pattern. One day we’re faithfully adhering to our budget and savings plan, and the next, we’re bewildered by the growing number of Amazon receipts and nights out for dinner we notice on credit card statement...realizing we haven’t been saving as much as we intended. This gradual increase in spending, known as 'lifestyle creep,' often occurs after a rise in our disposable income from a raise, promotion, or growing profitability of your business, leading us to spend more when would be better off saving it for the future.

Drawing from my own experiences and from working with clients over the years, here are three practical strategies to help keep lifestyle creep in check:

Update your Financial Plan (In Writing):

The power of writing things down cannot be overstated, especially when it comes to our finances. That’s why my first suggest for avoiding lifestyle creep is to update your written financial plan (or create one if you haven’t) with your new income level in mind. This newfound income could affect virtual everything in your plan such as your goals, savings strategies, estate plan, insurance needs, and even your investment strategy, so it’s important to revisit these things and see if your plan still makes sense. For example, an increase in income could afford you a more comfortable retirement, could allow you to pass on more assets to your children, and could even open up your portfolio to new and exciting investment opportunities. But you will only discover this if you take the time to thoroughly review your plan and make the necessary changes. Now, you might think in your head, “this money will do X for me” but if you don’t allocate this money to specific written goals, you run the risk of simply spending it. Remember, a goal without a plan is merely a wish.

Automate Your Savings (And Adjust it)

At this point, you’ve likely heard the phrase ‘pay yourself first’ a thousand times – and that’s for good reason: it really works. And what is the most effective way to accomplish this? Automating your savings. This involves directing a set portion of your income to your investment account(s) so that you never see that money in your checking account, thus aren’t tempted to spend it. And when you experience an increase in income, simply increase your automated savings amount to align with the new savings goals you’ve established in your financial plan. But why does it work? It works because of a little-discussed behavioral bias called mental accounting. This is a phenomenon where we value money differently based on its source, intended use, or the circumstances we find ourselves in. For example, you may be very frugal at home, but on vacation, you spare no expense because, hey, you’re on vacation, right? In reality, your money has the same value, and the result will be the same regardless of whether you splurge at home or on vacation. However, in your head, it feels different. This bias may initially seem entirely negative, but if we understand it and leverage it to our advantage, it can be a very powerful tool for staving off lifestyle creep. By automating your savings, you are mentally earmarking that money for an important goal, like retirement, for example, making you far less inclined to spend it. Additionally, saving in accounts like IRAs or 401(k)s creates further barriers to spending, as they impose penalties for early withdrawal. So, if you want your increase in income to result in getting ahead, embrace automation and turn mental accounting into your ally.

Creating a ‘Buy List’ to Avoid Impulse Purchases:

The last tip I have for you is to create a ‘buy list’ which is a strategy I have personally found very useful in reining in those impulse purchases. It’s a simple technique: if you come across something you’d like to purchase that isn’t a necessity, add it to your ‘buy list’ and then wait. Wait a week, a month, or even a year. If, at the end of your waiting period, you still want to purchase the item, then go for it. This approach works because it gives us time to determine if the item is truly necessary or if it’s just the emotions of the moment fueling our desire. Let me give you an example from my own life that illustrates the power of this technique. Last year, at the start of football season when the weather was still pleasant, I thought I really needed an outdoor TV to watch the games. However, before making the purchase, I added it to my ‘buy list’ and waited a few weeks. And guess what happened? The weather turned cold and unpleasant, and the idea of an outdoor TV no longer seemed appealing. I live in Maryland, and for those reading this from the DMV who are football fans, you know there’s only about a month or so of nice weather during football season. Waiting helped me realize that I wouldn’t even enjoy the TV, and it would simply be a waste of money. So, take it from me: if you want to curb those impulse purchases, create a ‘buy list.’ After giving yourself time to weigh the pros and cons, make an informed decision about whether you need it or not.

Anyway, thank you all for reading, and congratulations on the new income! I hope these tips can help you better manage that income so that you’re able to get ahead and achieve the life you want. And remember, by being intentional with our finances, we can make decisions today that will set us up for a brighter tomorrow because success does not happen by accident.