Over time, your bump in income changes your spending habits. Slowly but surely, your monthly expenses expand in number and price. You upgrade your essentials, from your smartphone to your car to your apartment. You indulge in more luxuries, like dinners at high-end restaurants and shopping sprees at designer boutiques. Your lifestyle is more extravagant because you can afford it.
But can you really afford it?
Read ahead to find out how lifestyle creep is a serious financial problem and what you can do to avoid it as your income grows.
What’s Wrong with Lifestyle Creep?
The insidious nature of lifestyle creep is that it can make you financially vulnerable, even when you’re making more money than ever before.
The allure of a more upscale lifestyle can encourage you to neglect practical habits that can protect your financial stability. You might not pay down outstanding debts — if anything you might find that your debts grow with your change in lifestyle. You might not squirrel money away into a savings account. You might not be ready to handle any financial obstacles that come your way.
What if you get hit with an emergency expense? Will you have enough savings readily available to pay for it? If you’re living with lifestyle creep, your answer might be a surprising “no.”
A single emergency expense could send you into a panic. How will you pay for it? You could turn to alternative payment methods to cover the expense in a short amount of time. In that case, you could use a credit card, as long as the balance is far below the credit limit. You could also look into an online borrowing option like flex lending. Find out what is flex lending and how it can help you in this type of emergency. You just might be eligible to apply for one when something goes wrong.
The strange thing is that you might have followed these practical financial habits when your income is lower. This is because you didn’t assume that you could afford any type of expense. You knew that you had to be careful with your money.
An increase in income should add more financial stability to your life, not less. You can achieve that stability, as long as you avoid falling into the trap of lifestyle creep.
5 Ways You Can Prevent the Creep and Save More
You can handle anything as long you have a plan. Follow these steps to manage your money with more intention and avoid lifestyle creep.
1. Learn about Lifestyle Creep
Awareness is key! The first step to avoiding lifestyle creep is to learn what it is. Now that you know about this financial phenomenon, it will be much easier for you to recognize it in your own life. You can see that you’re practicing unsustainable spending habits and setting yourself up for trouble down the line.
2. Make a Budget
The best way to keep your spending in check is to make a personal budget. A personal budget will show you just how much you’re bringing in every single month and how that measures up to your essential and non-essential expenses. The guidelines of your budget should give you a clear idea of what you can reasonably afford to spend.
How can you start a budget? The easiest way is to download one of the top budgeting apps on your smartphone or computer and then follow the instructions.
3. Use Credit Responsibly
Do you swipe your credit card and withdraw from your line of credit without thinking about how you’ll make repayments later on? Do you just keep borrowing so that you can maintain your lifestyle? You should stop this. You will end up borrowing too much and creating outstanding balances that you can’t afford to repay in a reasonable time or manner. You might even max out your accounts.
Use your credit more responsibly. Only charge expenses to your credit card when you’re sure that you can pay off the balance by the next bill. This will keep you from paying interest later on. When it comes to lines of credit, you should only use them for emergencies — not everyday expenses. Leave them alone until you need help with unexpected household repairs or medical expenses.
4. Set Aside Savings
You don’t want to make yourself vulnerable to financial emergencies. So, set aside savings in an emergency fund. An emergency fund is a safety net that can catch you when something goes wrong.
How much should you set aside? A general rule of thumb is to save three to six months’ worth of living expenses in your emergency fund. At this size, you can use the savings to cover urgent, unplanned costs without having to rely on a credit card, line of credit or flex loan.
These short-term savings can also help you handle some of life’s biggest emergencies. If you get laid off, fall ill, or have to look after an ailing family member, you’ll have enough savings to cover six months’ worth of expenses and stay afloat.
5. Splurge with Intention
You don’t have to live on a shoestring budget once you start earning more money. While the idea of saving all your extra money is noble, it’s just not realistic. You’ll get tired of the intense restriction and eventually spend well beyond your means.
It’s much wiser to make room in your personal budget for splurges. This way, you’ll know that you’re not overspending when you decide to buy something on the more expensive side. Giving yourself permission to indulge should stop you from rebelling against your budget and splurging impulsively. Instead, you’ll splurge with intention.
The Bottom Line about Lifestyle Creep
Wanting to upgrade your lifestyle whenever you earn more money is completely justified. But spending all of your extra earnings without setting up any safety nets isn’t a good idea.
Keep today’s tips in mind whenever your paycheck grows. They’ll help you enjoy your new income and maintain your financial stability at the same time.
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