You may have heard the old fable about a boiling frog. The argument of the fable is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in room temperature water which is then brought to a boil slowly, it will not perceive the danger and will be cooked. The story is often used as a metaphor for the inability of people to react to problems that arise gradually. Lifestyle creep can happen to us in our financial lives in much the same way.
What Is Lifestyle Creep?
Many people see their income gradually rise through life: a promotion, a job change, a cost-of-living increase in their wage. Without a clear plan on what to do with these increases in income, it is easy to have that income effectively lost due to increased spending.
It often begins with little things: adding more online-streaming subscriptions, buying the more expensive produce at the grocery store, making more frequent computer upgrades, staying in nicer hotels ….
The problem is that little things have a way of adding up. That increase income can effectively disappear through increased expenses.
Lifestyle creep happens when your spending rises with your income.
How to Keep Lifestyle Creep from Sabotaging Your Goals
A reasonable increase in your expenses isn’t a terrible thing, but you don’t want the small increases in your expenses to become serious obstacles to your financial goals.
Research from the Federal Reserve Bank of New York shows that most of your inflation-adjusted wage growth will happen in your early working years. Income levels tend to level off in mid-career and peak in your 50s.
Similarly, a study from the Labor Department shows that the greatest inflation-adjusted income growth comes in your 20s, but continues to grow at a declining pace in your 30s and 40s.
It’s crucial to keep lifestyle creep under control. And to keep lifestyle creep in check, you need a system that makes it easy to save your hard-earned dollars.
Perhaps the most important way to avoid lifestyle creep is to treat your financial goals as bills that will come due at a future date. In order to pay these “bills” you have to set aside a certain amount each month no matter what. This amount should increase every year, at least at the rate of inflation. It is important to treat these financial goals as required bills that will come due so that you don’t delay contributing to them in order to purchase a new, flashy wish-list item.
Next Steps …
If you want to make intentional choices with your money, here are resources you can start with: