ay I ask you a few questions really quick?
- How many streaming service subscriptions do you have?
- How many do you actually watch on a regular basis each month?
- How often do you eat out every week?
- How much is your phone bill each month?
- How often do you go out with friends each month?
- How much do you put in your savings account each pay?
Depending on how you answered each of those questions, you may find that you are a victim of lifestyle creep. What is Lifestyle creep? Lifestyle creep is when you start spending more money on things you previously didn't because you have/make more money. Basically, it’s when you have more money so you spend more money on things you don’t need.
What Causes Lifestyle Creep?
Lifestyle creep can be caused by a variety of different things. One of the most common causes of lifestyle creep is when a person pays off all of their debt. Some of you who are students in college or out of college may be able to identify with this one. Let’s say you’ve been paying $250 dollars a month on your student loan for 5 years, after those five years are up your loan is fully paid off, and now that $250 dollars that were going to your debt are available for you to use elsewhere. Maybe you decide to spend it on updating your wardrobe, you do have to look nice when going to work or hanging out with friends. Or maybe you decide to upgrade your phone plan and finally get that new smartphone your friends keep telling you to get. Sure it’ll add an extra 60 dollars to your phone bill, but why not? You’ve got $250 extra dollars a month, you can afford it, so why not?
Just to clarify, none of these are necessarily bad things. It’s not a bad idea to treat yourself every now and then. The issues arise when the new expenses you're adding affect your ability to save and invest money. Think of it this way, if you now have $250 extra dollars each month because you no longer have to pay off debt, but you have already been saving or investing each pay, then one or two extra expenses really aren't too bad. Tiaa.org recommends you break your income down using the 50/30/20 rule. It goes like this--
- 50% of your income should go towards your necessities. Bills, rent, food, insurance, etc.
- 30% (Maximum) should go towards discretionary expenses. These are non-essential items or services that are used to make life easier or more enjoyable. Examples would be, new phones, game systems, expensive clothes/shoes, streaming services, vacations, etc.
- 20% should go towards, saving or investments. Savings should be prioritized while investments should come after you have a sizable amount in your savings account.
Taking the time to learn the ins and outs of investing is a wise investment of your time.
Image courtesy of Unsplash.
Why Lifestyle Creep Should Be Avoided
So maybe you don’t put 20% of your income in a savings account, and maybe you don’t want to go through the headache of learning and keeping up with investing. Your rent gets paid every month and you keep the lights on, so what's wrong with spending your extra money on the finer things in life? Fair point, and it really isn’t anyone’s place to tell you how to live your life, but there are some downsides to lifestyle creep that you should keep in mind. Here us out and then make your decision for yourself.
First, and most importantly, you're going to be lacking money for emergency situations. Life can and will hit you with unexpected expenses, it’s inevitable. What happens if you get sick, or you or a family member gets in an accident? Even with the best insurance, you’ll often need a sizable amount of money to pay off medical bills and prescriptions. What happens if/when your car needs repairs or maintenance? Those parts don’t come cheap. Having some money saved up could allow you to handle that situation without any problems, or at the very least it can take some of the stress off knowing that a large portion of the bill can be paid for with your savings.
There is also the matter of vacations or emergency trips. Ill family or friends have already been mentioned but what about the passing of a family member or friend? If they lived out of town or even out of state you’re going to want to be there for the funeral and that travel expense could get pricey, depending on where they lived and how long you’d be there.
If you love to travel then you're going to need to save money for plane tickets, food, hotels, and entertainment while on the trip. Most of us don’t have it so good that we can just jump up and go on vacation any time we want. Having a sizable amount in your savings allows you to plan trips like that and budget accordingly.
This can be you if you stay dedicated to your savings and avoid lifestyle creep. Image courtesy of Unsplash.
How to Avoid Lifestyle Creep
Let’s go over some helpful tips for avoiding lifestyle creep. Do you remember the questions I asked you at the beginning of this piece? Let’s go back to them. Streaming services are great but let's face it, oftentimes we don’t end up watching a streaming service for a whole month yet we have it on auto-renew for each month. A good practice for services like these is to avoid auto-renews if possible. Only resubscribe when you’re ready to watch something. If possible, wait until the show you want to watch is finished airing on the platform and then binge the whole show in one month.
Next up, learn to cook your own meals, and learn to make pots of food. You wouldn’t believe how much money we often end up spending on fast food, takeout, lunches, and coffee. How many of us remember packing a lunch when we were in grade school? Whether you made it yourself or your mom made it for you, it was a good practice to learn if you want to save money in the long term. If you're going to work every day, it’s better to pack a lunch rather than eat out. It’s also healthier.
Some people find that after landing a new job or position they are too wrapped up in their work to remember to make a lunch each day. No problem, a great way to avoid this is to make all of your lunches for the work week on your days off. I know doing work on your day off sounds like a drag and honestly, it is. But the benefits of packed lunches are well worth it. Your body and wallet will thank you.
The phone bill is up next but this applies to any and all luxury electronics. Let’s be real, no one needs the newest phone, game system, computer, or gadget. These are things we want for their status and entertainment. My best advice for this section is to be humble and only upgrade when you absolutely need to. You really don’t need a new phone every year. Every 3 or 4 years is more like it. You also may not actually need unlimited high-speed data. Most places you go to have wifi. If you spend most of your time at home and in the office then you really shouldn’t need to connect your phone to the internet too often while out and about. Most services like audiobooks, music, and video streaming services offer a feature to download their content so you can listen to it offline. Making use of this feature can save you a lot of data while on the go. You will need some foresight to download things before you're actually going to listen to them.
When it comes to games and computers it’s often best to wait for things to go on sale instead of getting them when they first come out. Black Friday is a great example. Most electronics upgrade a small amount over time. The Nvidia 4080 graphics card isn't going to be that much stronger than a 3080, so it may be best to hold off on those upgrades until the prices are a bit more agreeable or until you absolutely need a new graphics card. When it comes to electronics and lifestyle creep it’s all about showing restraint and not jumping at the newest shiniest gadget on the market.
Unless you work as an engineer or a graphic designer you really don’t need all of this. Image courtesy of Unsplash.
Conclusion
So there you have it, lifestyle creep in a nutshell, what causes it, and some tips on how to avoid it. The biggest takeaway from this is to live life comfortably but not above your means. Get what you need, not necessarily what you want. Save those times when you treat yourself for holidays and your birthday. You should always be striving for a financial cushion that you can fall back on just in case you run into tough times. As covid-19 has shown us, you never know when you may all of the sudden be out of a job. You need to be prepared for situations like that, and your savings will keep you covered.
