When income increases, the natural impulse for most people is to want to spend more. You worked for it, and now you want to enjoy it.
But if you’re not careful it can also lead to lifestyle creep – a situation where your spending on things that were previously viewed as luxuries becomes a standard of living.
Lifestyle creep can be very dangerous because it is too easy to allow yourself to become accustomed to a lifestyle that you may not be able to afford in the long term.
After working in finance for over a decade, I’ve drilled down the best ways to avoid lifestyle creep.
Below, I’ll share the top strategies to recognize lifestyle inflation and how to enjoy your money now while also building wealth for your future.
The trap of lifestyle inflation
Let’s be honest, spending money can be fun. According to science, there are benefits to retail therapy, such as a temporary increase in mood.. But if you’re not mindful, it’ll quickly evolve to lifestyle creep.
Should you constantly resist the urge to upgrade your lifestyle as your income goes up? No, do it wisely.
When you get a raise, instead of immediately increasing your spending, take some time to think about what you really want and need. Make sure your financial goals are still a priority.
Then, if you have money left over, consider treating yourself to a nice purchase that doesn’t break your budget.
Just be sure to keep it in moderation, so you don’t find yourself working hard just to maintain your upgraded lifestyle.
If you can avoid lifestyle creep and stay disciplined, you’ll reap the benefits of financial freedom for years to come.
How do you combat lifestyle inflation?
Lifestyle creep, also known as lifestyle inflation, is a real phenomenon that can impact anyone – especially Canadians who are successful in their careers. It’s the gradual increase in spending that often accompanies a rise in income.
It’s not necessarily a bad thing – after all, as your earnings go up, you may want to spend more on things like travel and dining out.
However, if unchecked, lifestyle creep can erode your savings and prevent you from reaching your long-term financial goals. Here are the top ways to combat lifestyle inflation:
1. Define your goals and values so you can stay on track
When it comes to avoiding lifestyle creep, one of the most important things you can do is to define your goals and values. This will help you stay on track and make sure that your spending aligns with what is important to you.
Some people find it helpful to create a written list of their goals and values, while others simply keep them in mind.
Either way, taking the time to define your goals and values is an important step in avoiding lifestyle creep and staying on track with your financial plans.
2. Apply the 50/30/20 Rule
One of the most important things you can do to help manage your finances and avoid becoming a lifestyle creep victim is to create a budget and stick to it.
This may seem like a daunting task, but there are plenty of resources available to help you get started.
There are many different ways to budget, but one of the simplest and most effective methods is the 50/30/20 rule. This rule states that 50% of your income should go towards your essential living expenses, 30% towards discretionary spending, and the remaining 20% towards savings and debt repayment.
Use this as a starting point and feel free to adjust the ratios to align with your goals.
3. Beware of Budget Busters
Budget busters are areas in which you can easily blow through a significant portion of your budget. It’s important to know what they are so that you can avoid them and stay on track with your goals.
Some common budget busters include eating out, entertainment, clothing, and hobbies/vices.
Another major budget buster is credit card interest. If you’re not careful, the interest on your credit cards can add up – and before you know it, you’re paying twice as much for your purchase as you originally intended.
To avoid this, be sure to pay off your credit card balance in full each month.
4. Reward yourself for good financial behaviour
It’s important to celebrate your small victories along the way when it comes to your financial habits. This helps you avoid frugal fatigue, which can easily set in if you never allow yourself to enjoy your money.
So go ahead and make space in your budget to treat yourself for your good financial behaviour.
Whether it’s taking a relaxing trip, purchasing a new item of clothing, or enjoying a meal at your favourite restaurant, rewarding yourself can be an effective way to reinforce your financial discipline and stay motivated.
By celebrating your small victories, you can continue working towards your financial goals and avoid lifestyle creep at the same time.
5. Automate your finances and investments to prevent overspending
One of the best ways to avoid lifestyle creep and overspending is to automate your finances and investments.
By automating your bills, rent payments, and other essential expenses, you eliminate the temptation to overspend by keeping these items at a manageable level.
You can also use automation to your advantage when it comes to investing. By setting up regular, automatic deposits into your investment accounts, you can make sure that you are always investing a set amount of money each month.
This can help you reach your financial goals quicker and prevent you from overspending on non-essential items.
6. Stay mindful of your spending habits
At the core of any successful financial plan is mindful spending – that is, being aware of your spending habits and staying disciplined in your approach.
Some useful strategies include tracking your spending using a budgeting app or getting regular reports from your bank online.
By tracking your spending and remaining mindful of lifestyle creep, you can make sure that your spending aligns with your financial goals and values.
Social media can be a great way to stay connected with friends and family, but it can also be a breeding ground for comparison and envy.
It’s easy to get caught up in the highlight reel of everyone else’s life and forget that what we see on social media is often an edited version of reality.
So next time you find yourself scrolling through your feed and feel an urge to upgrade everything in your life, remember what your financial goals and values are. Comparison is the thief of joy, so don’t let social media steal yours.
8. Remember that happiness doesn’t come from stuff
When it comes to happiness, many of us often mistakenly believe that the key to finding true joy lies in accumulating more stuff.
But while material possessions may offer a temporary high, they eventually lose their lustre and leave us wanting more. The truth is, happiness doesn’t come from stuff—it comes from within.
To be truly happy, we need to focus on the things that matter in life, like spending time with loved ones, nurturing our relationships, and appreciating the simple things that bring us joy.
By focusing on these things instead of constantly seeking out new material possessions, we can find the lasting happiness we all crave.
9. Get professional financial help
If you are struggling to grow your wealth, one of the best things you can do is get professional financial help.
Whether you hire a money coach or a financial advisor, having someone analyze your finances, help you determine your goals, create a financial plan, and most importantly execute it, can be a powerful tool for overcoming lifestyle creep and staying on track with your financial goals.
Professional help can also provide accountability and support, which can be essential for making lasting changes to your spending habits.
So if you feel like you need some help getting your finances in order, don’t hesitate to seek out the support of a financial professional.
With the right guidance, you can stay focused on your goals and avoid lifestyle creep, no matter what life may throw your way.
You’re now equipped to avoid lifestyle creep. If you manage your finances wisely and keep your goals a priority, you can enjoy the benefits of retail therapy while still staying on track with your financial goals.
So go ahead – treat yourself every now and then, but remember to be mindful and stay disciplined with your spending habits. After all, you’ve worked hard to make your money – you deserve it!
Now, make your money work for you, check out other ways to save money in Canada.