Avoiding Lifestyle Creep: The Dangers of Entitlement and Overspending

You work hard for your money. Most people put in over 40 hours per week to earn just enough to get by, so it is tempting to bask in the pay increase when they get a raise or earn a promotion.

Celebrating is natural and often deserved, but when celebration becomes a habit and habit becomes an entitlement, you enter the realm of lifestyle creep. The evolution is not uncommon, and it can result in the carryover of bad financial decisions and a situation where you are still living paycheck to paycheck.

Understanding Lifestyle Creep

Lifestyle creep occurs when you increase your spending habits after receiving a raise. Many people fall into the trap of thinking they earn more money so they can spend more. However, it would help if you thought about these things proportionally.

If you are used to spending your entire paycheck and continue that habit when you get a raise, you will be able to spend more, but you will not be in a better financial position. The desire to spend more when you make more is understandable and perhaps Ok for a time. Still, at some point, you need to prioritize savings and investments to experience genuine wealth and financial security.

A significant problem with lifestyle creep is the idea that new expenses are essential to your happiness and life. For instance, you might sign-up with a few subscription services or partake in several meals out. While these new expenses were nonexistent when you were making less money, they now seem essential, and the thought of cutting them unthinkable.

Avoiding Lifestyle Creep

People often assume they will not fall victim to lifestyle creep, but it does not appear suddenly; it is a gradual transition. You might notice that your savings is stagnant or not growing as you would like. It is not uncommon to stop budgeting and increase spending on nonessential items. When lifestyle creep is fully present, you will likely no longer feel in control of your finances.

As you move up the corporate ladder, life is supposed to get easier, but that doesn't mean it gets more luxurious. Too many people correlate financial success with materialism and lax spending, but that is inaccurate. Some of the most successful and wealthy people live relatively modest lives.

The key to avoiding lifestyle creep is planning. Instead of increasing spending habits when you get a raise, commit to following a basic financial rule, 50/30/20.

The 50/30/20 rule dictates that 50% of your paycheck goes to needs, 30% to wants, and 20% to savings and paying off debts. Adopting this rule ensures that your savings grow proportionally to your income. For instance, if you adopt the practice when you make $3,000 per month, you will save $600 per month. If you get a raise to $4,000 per month, your savings jumps to $800. The benefit of following the 50/30/20 rule is you also see a proportional increase in allowable spending, meaning you can still have some fun with your raise.

The primary focus is that your free spending becomes balanced with your needs and savings. A healthy financial future depends on savings and investing more than anything, so always focus on long-term goals over short-term wants.

Do you have experience with lifestyle creep, or do you have any other tips for avoiding its downfalls?