Beware of lifestyle creep. It's sabotaging your savings.

November 05, 2021
2 mins

If you've ever received a raise, you're probably familiar with that urge to immediately use your newfound financial superpower. Maybe it's a fancy dinner out, a spontaneous weekend getaway, or even a riskier move to a pricey car loan. But, you've got the money, so it's alright, right?

Beware of the lifestyle creep. Lifestyle creep or inflation is when your living expenses and non-essential expenditures increase with your growing income. This "creep" can make those things and activities that once seemed like luxuries become perceived necessities. 

In other words, this is what happens when your new standard of living creeps up and cuts into your savings. And the problem is that over time you lose sight of what you actually need.

While it's important to celebrate your achievements every now and then with a fancy dinner or a nice vacation (you deserve to treat yourself after all), it's also important not to get in the habit of squandering your money. A healthy balance of awareness of your financial goals, discipline and planning will go a long way. 

So what should you do to resist lifestyle inflation as your salary goes up? Here are two practical, simple ideas:

💡 Fund your savings goals before making any lifestyle improvements. Basically, have a plan for any raise you might get. Consider increasing your 401(k) contribution by 1-3%, or saving 75% of every raise.

💡  Create a fun fund after paying yourself first. Doing this could help you splurge more "wisely." Some online banks or banking services, such as Ally or One Finance, allow you to create simple "buckets" or "pockets" for different savings goals.

Finally, take this bite-sized quiz on budgeting basics to takeaway an insight or two:

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