It is human nature to always want more than we have.
“It’s called the hedonic treadmill and the idea is that people always go back to the foundation of happiness and never really get satisfied. We always want more, more, more,” says Yanely Espinal, director of educational outreach for Next Gen Personal Finance.
You might think that because of the revival of all your finances – you’ll finally be able to afford a nice vacation, a large emergency savings account or a mortgage on a new home – but if you’re not, you are. it could end up increasing your spending so much that you sacrifice your long-term financial health.
What is Lifestyle Creep?
Lifestyle creep – or slowly accustoming yourself to luxuries and increasing your spending to the detriment of your savings – can be a dangerous phenomenon.
You work for your money, so you want to spend it on things that make you happy. It is natural. But while it is natural to want more money to make life better, it is important not to overdo it.
Earning money should correspond more to economic stability, and this does not always happen – the grace of living creeps up.
“Life creep happens when an increase in income leads to an increase in living expenses and nonessential expenses. That is, what were once luxuries when the pain has become a lower income (perceived) make more necessary. Some experts call it “inflation of living”” Kyle Enright, president of Achieve Conveniently, he says.
This could mean moving into a bigger house, upgrading your car or splurging on designer clothes. But if all that extra money you’re earning goes toward luxury purchases to improve your financial security, it almost cancels out the benefit of making more money.
“What happens is that economic conditions cannot improve because they do everything,” Robert Johnson, Ph.D. and a professor of economics at Creighton University, he says.
Is the Creep lifestyle bad?
It is important to know that life is important. Everyone wants something nicer, and if we have the money to pay for it, there’s nothing wrong with treating ourselves.
“It is natural to buy more and more in the essentials as the income increases,” he says correctly. “It is also natural that you would like to improve your lifestyle; Not everyone wants to have the same stuff they did in college or maintain the same lifestyle they did in their early twenties.
When you can’t meet your financial goals based on increased income — like keeping six months of emergency savings on hand or paying for a child’s education — the lifestyle creep becomes an issue, he adds.
According to Espinal, the creeping evil of living becomes when your wants and needs fall out of balance.
“The problem arises when you only have more and you don’t keep more together. In other words, you lack balance and have gone too far to inflate your current life goals, ignoring your future financial goals,” he said.
How to escape lifestyle creep
Experts agree that the best tip to avoid crawling is lifestyle followed by a budget.
“Similarly, in your budget a percentage of the income received to pay from everyone’s paycheck,” said Espinal.
“Some are able to retire, some to claim the fund, others to save for other goals.” When your income goes up, even if the percentage remains the same, it will mean more money. But whenever you raise or earn more, look and see if you can get this point back every day,” he added.
“The best way to increase your savings is to always keep it in your hands,” he said.
Typically, you can transfer to a savings account when you pay your salary – and you can adjust the amount of your income.
It’s also crucial to have regular check-ins with you and your partner or family to figure out what your goals are – and if your current spending habits are helping them.
“To move forward financially and avoid debilitating debt (and stress), it’s important to set goals and do it together with your partner, spouse or family as appropriate…those goals will change over time, but they are what they should be. Guide your saving and spending, Spinal said.
Finally, prioritizing the future will make you financially stronger in the long run, so Johnson recommends investing in your budget. If possible, live within your means earlier in life so you can have a good retirement, he says.
They are brought down by a wise man
While part of the lifestyle creep could be from simple overspending, it can also be a bit trickier to manage a larger income. Follow these tips to make the most of your new finances:
- When he gets a job, he’s going to invest. If you’re already living a life in which you’re comfortable, it’s safest to act as if you can’t revive it at all, says Johnson. He recommends putting additional money into an investment account so you can see big returns over time.
- Prioritize paying off the highest interest debt. “If you have a credit card or a debt anywhere – you have to pay it down,” Righte says. If you’re not paying interest, you’re essentially putting that money back into your budget and credit score down the road, he adds.
- Build an emergency fund. Having a healthy emergency fund that is equal to three to six months of expenses is extremely important. Even if you make more money now, it would not be permanent. It is wise to prepare for the unexpected.
- To save retirement. Higher incomes allow you to invest in your future and enjoy a comfortable retirement. Enright recommends starting with your company’s largest 401(k) match. A more immediate return also means that you can increase the percentage you save – and even receive it earlier than expected if you invest more aggressively.
- Consider equity and net worth. Building wealth is more than just bringing in additional cash. You may also want to consider opportunities to increase your home equity or other assets. “An investment in your home is if you’re a parent and it needs repairs or maintenance. Capital improvements can also sometimes create additional equity,” Straight says.
- Pay back where you can. One benefit of making more money is the ability to pay it forward. Consider building a charity into your budget.
The difference between treats and needs
According to Espinal, choosing where to invest your money when your income increases is a deeply personal choice.
Some lifestyle expenses may take priority over short-term goals, such as upgrading a car or home, he says. For others, it would be the end of early retirement, thus removing the largest chunk of investments. You just need to carefully consider the consequences of your choices on your financial health.
“Getting, buying, buying a car or a new house or any other real or perceived upgrade to your financial life will spark the beginning of happiness.” But soon in your life it becomes a new norm and you realize that you already want more,” Espinal says.
While we should not refrain from dealing, he says, we must carefully remember that these types of purchases are treated, not necessary. Otherwise, an unexpected life event like a medical accident, high inflation or losing your job can have a disastrous effect.
The key is to strike a balance between a happy financial life and a healthy life. Focus on upgrades sometimes, but not at the expense of savings or rest.