Does it seem like your financial situation is worsening, even though you’re making more than ever? Well, it lifestyle creep might be the reason! Don’t know about lifestyle creep? Read on to find out what it is and how to stop it from ruining your life…
What Is Lifestyle Creep?
First, let’s actually define lifestyle creep. According to former Consumer Reports editor and Investigator author Julia Kagan, “lifestyle creep occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities.”
As you can guess, the rise in discretionary spending can result from either a decrease in overall costs or a new increase in income. One of the hallmarks of lifestyle creep is saying “you deserve it” when buying something, instead of thinking about the opportunities that could result from saving the money. Now, don’t get us wrong, there’s nothing wrong with occasionally picking up something you want but don’t need. However, lifestyle creep can turn someone into an irresponsible spender. Thankfully, there are ways to battle lifestyle creep!
Recognize Lifestyle Creep
The best way to stop lifestyle creep? Recognize it quickly and stop it as soon as possible! Danielle R. Harrison, a Certified Financial Planner at Harrison Financial Planning in Columbia, Missouri, stated that it’s really the only solution. “If you’ve never experienced the money, it is much easier to not know what you are missing,” she explained.
As you might imagine, budgeting will almost certainly help. “How can you track your spending if you have no idea where it’s going in the first place?” says savings expert Andrea Woroch. “A budget tells your money where to go and keeps you from wasting it on things that don’t matter.” David J. Haas, a Certified Financial Planner with Cereus Financial Advisors in Franklin Lakes, New Jersey, agrees. “I recommend keeping both a monthly and an annual budget and look at any new monetary commitments through the lens of both budgets,” he said.
Don’t know how to budget? There’s good news: there are plenty of ways to budget! Whether you prefer paper tracking, like the 50/30/20 rule, or like to use apps, there are plenty of ways to keep an eye on your spending. While paper tracking works, it might be better to let technology do the work…
Let Technology Do The Work
Don’t trust to budget yourself? There are plenty of great apps that will help you make sure that you save when you need to. The easiest option? Set up a direct deposit to your savings account each month! “For many of us, we view funds as available to spend the moment they hit our bank account,” said Nicole Gopoian Wirick, a Certified Financial Planner based in Birmingham, Mississippi. “To avoid this, I encourage clients to implement a direct savings plan where money automatically transfers from their bank account to a savings and investment account.”
This method also works for retirement accounts, like 401(k)s, individual retirement accounts (IRAs), or Health Savings Accounts (HSAs), too. Furthermore, even this process can be automated, with annual contributions piling in.
And remember – if you can’t handle the lifestyle creep alone, reach out to the financial adviser or certified financial planner for help.