Joe's Journal | Financial Independence | Lifestyle Creep

Well, the month is nearing an end and I’m pretty excited for it. This month has been a rollercoaster for me. I’ve been in the job hunt to land some security in my career, and everything came to fruition, all at once. While nothing is official, things appear to be fairly certain, and I couldn’t be happier with my situation.

While that’s really fun, and I could talk a lot about that, I want to make sure to highlight what this means for our financial independence, and what this may entail. This potential transition brings up a very important topic when it comes to personal finance, lifestyle creep. This topic is huge, and arguably, at the root of a lot of consumer debt.  

Let’s not get lost in fancy words, consumer debt = debt. Things like credit cards, personal loans, car loans, etc.

What is lifestyle creep?

In a simple description, it’s when your spending continues to rise as you increase your income. Say you spend 30,000 a year when you make 50,000 in income. You’re living life, maybe have a roommate and can afford to go out to eat once and awhile. Not too shabby! Now say you were given a raise to 75,000 a year. You would expect to save an additional 25,000 a year, which would be awesome! However, what is most likely to occur is that your expenses for the year will increase. Say you decide to move into a place of your own, buy a newer car, maybe a new TV or computer. All of that can, and often times exceeds, what that raise covers.

This is how someone who makes 6 figures a year suffers from the same exact financial problems that a person making minimum wage will face. I mean, how does someone who makes six figures a year spend so much? Well, this is where people decide to upgrade to the new phone every year, Starbucks every day, new cars every other year (sometimes yearly), buying a larger than needed home, eating out, etc. There are numerous instances out there, and it wasn’t until I began my career before I realized how true it is.

Amplify your habits

Getting more money only amplifies your habits. If you are someone who wants to save money, begin that habit now, regardless of your financial situation. This is something that will be magnified as more income comes in. There are various ways to combat lifestyle creep, and one of the most common ways is to “pay yourself” before all else. Find a number that is sustainable and put that money in a bank account/high interest savings account immediately. Then pay your bills. As you increase your income, that “pay yourself” amount should increase proportionately.

Are you saying I should always live as if I didn’t have money?

Well, personally I do. But, you don’t have to. Say you had the previous example of a raise from 50,000 to 75,000 per year. Ideally you save the extra 25,000 per year, but you want to increase your quality of life (a valid use for money). Find the things that are really hampering your quality of life. Perhaps it is in fact having a roommate. Maybe it’s being able to go out to eat an extra night a week. Potentially it could be upgrading your phone to the newest model. Any one of those things are more than possible! But, there is no need to do every single one. I strongly recommend being more intimate with your spending and knowing how much money is spent where. This information can help you identify the lifestyle creep sooner, and allowing you to ask yourself in advance if these new spending habits -- or things your buying -- are truly worth it.

Pay yourself first.