What Is Lifestyle Creep And How Do I Avoid It?

Lifestyle creep is the tendency for people to increase their spending in proportion to increased income or availability of credit for material / non-material wants like consumer goods or experiences.

If being frugal is spending less than you earn and stretching every dollar for maximum impact, lifestyle creep is its evil twin. It’s the devil on your shoulder encouraging you to spend every last dollar — and sometimes more — while justifying your actions the whole way through.

This process can be subtle, and therefore hard to notice until its too late. So, you need to be vigilant and stay on top of your budget to make sure you’re living within your means, staying on top of your debt and keeping your savings goals front of mind. Following are the three most common forms of lifestyle creep and some proven techniques to help you avoid becoming a victim.

Getting a raise or bonus

The biggest problem with raises and bonuses is people tend to overidentify with how hard they worked to earn them. They reason they deserve that income — and therefore deserve the fruits of that income. After all, what’s the point of having more money if they can’t go out and spend it?

So, they head out to the electronics store and buy a bigger television. They treat themselves to an expensive dinner at a fancy restaurant. They go to the mall and replenish their old and outdated wardrobe. They do all the things they couldn’t afford to do before. And soon enough these things become a habit.

They adjust to their increased spending and slightly improved standard of living and it becomes the new normal. But at some point, they’ll eventually pause and wonder why they haven’t noticed an improvement on their bottom line.

The Fix

Whenever you get a raise or a bonus, first take a moment to congratulate yourself. You worked hard and its important to validate your success. Your very next step, though, should be to revisit your budget and bank accounts — and ask the following questions:

1. Do I have any debts which the increased income could help me pay off?
2. Do I have between three and six months of living expenses saved for an emergency?
3. What necessities (e.g. food, utilities, etc.) have I been sacrificing because I was living paycheque to paycheque?
4. What’s my current savings rate and what would increasing my savings rate help me achieve (e.g. children’s education, retirement goals, tropical vacation, etc.)?

Once you have these priorities in order and if your budget allows, plan for one reasonable splurge to celebrate. That could be dinner out with the family, a massage or a new article of clothing you’ve had your eye on. Then, continue with your previous spending habits as usual.

Paying off debt

Erasing the burden of debt from your life is a massive achievement — and celebrations are certainly in order. But its far from the end of your journey. The next thing you need to figure out is what you’re going to do with all that money you were previously using to pay back your creditors.

Unfortunately, many people fail to reflect on the mindsets and behaviours that got them into debt in the first place. Were they overspending? Did they lack emergency savings to get them through an unexpected expense? Had they been ‘winging it’ every month instead of using a budget? If they don’t change the root habits that caused their debt, history will repeat itself.

The Fix

Decide that paying off your debt was step one in a much bigger financial strategy. Use the momentum and lessons learned to propel you toward future financial goals. Some ideas for redirecting the ‘extra’ cash include increasing contributions to your:

1. Emergency fund (if you don’t already have three- to six-months living expenses saved)
2. RRSP, TFSA, pension or other retirement savings vehicle
3. Household expenses (only if you’ve had to cut back on necessities such as food and utilities)
4. Children’s RESP or other education savings fund
5. Short- or medium-term savings for things like a mortgage down payment, new vehicle, vacation or other spending goal

A reasonable one-time treat may help you mark the occasion and your progress thus far. But it also helps to remind yourself what you’ve successfully lived without through your debt repayment journey — and how much stress you’ve eliminated by simplifying your financial life.

Keeping up with the Joneses

The impulse to match your spending with a friend or neighbour who is — apparently — more well off than you is easily the most dangerous form of lifestyle creep. It can move you to spend more, even when you may not have the financial means to do so.

Note the key term here is apparently. Because without seeing your friend or neighbour’s bank statements, you have no way of knowing whether their material prosperity is real or merely a debt-fueled illusion. So, trying to match them splurge for splurge may only succeed in leading two households down the lonely road to financial distress rather than one.

The Fix

Everyone compares themselves to the people around them to some extent. It’s normal and perhaps even unavoidable. But you have complete control over how you respond to the related emotions. Be mindful of your spending and always question your motivations and the potential consequences before making a major purchase.

Some helpful questions might include:

1. Is this something I truly want — or, is something else driving my actions?
2. When did I begin to want this? What inspired me to want it? Do I genuinely want it at all?
3. What emotions am I feeling right now? Jealousy? Inadequacy? Spite?
4. Will I regret my decision to buy this? When? Why?
5. Am I willing to put myself (or my family) in debt or financial distress to make this purchase?

Gratitude is also extremely important: As the saying goes, the grass may seem greener on the other side — but it’s only greener where you water it. Just as you might feel envious of someone else’s material excesses, you never know what you have that they might covet just as much. Financial stability? A tightknit family, perhaps?

Life-Changing Debt Solutions

Lifestyle creep can lead to all sorts of debt problems ­— especially when interest rates are low and access to credit is high. But you don’t have to struggle with these issues alone. There are options to help free you from both your debt and unproductive habits for good.

During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your entire financial situation, discuss your challenges and goals and help identify options to get the financial fresh start you need and deserve. If you qualify, a Life-Changing Debt Solution such as Consumer Proposal or Bankruptcy can help you become debt free in as little as nine months. Both also provide for two financial counselling sessions to help you understand the root causes of your debt and develop better behaviours moving forward.

A Licensed Insolvency Trustee can also refer you to other services such as counseling, debt consolidation and budgeting / money management coaches to help you maximize the benefits and success of your financial fresh start. No matter which option (or combination of options) works best for your unique situation, they’ll help you make the best decision to achieve your desired outcome most effectively — and in the shortest timeframe possible.