Change Your Lifestyle: Take Control of Your Finances and Priorities

At some point in our lives, we all might fall victim to “lifestyle creep,” which refers to the phenomenon where our expenses gradually increase along with our income. It might start with small changes like upgrading your phone or enjoying a nicer dinner, but these seemingly insignificant splurges can turn into sustained spending that erodes your savings over time.

Eventually, you could find yourself living paycheck to paycheck unless you take better control of your financial situation. Sometimes, no matter how much your income increases, you might wonder where all your money goes each month. To achieve long-term financial stability and free up time for things that truly matter, it’s crucial to recognize and reverse lifestyle creep.

So, let’s explore how to identify lifestyle creep and consider practical steps to reverse it.

As someone’s income rises, so does their discretionary spending, leading to lifestyle creep. This increase is often subtle and may not seem excessive initially. For example, as your career progresses and your income grows, you might feel like you can afford certain upgrades in your lifestyle, such as a new car, a larger apartment, or a more luxurious vacation.

However, there is a risk that lifestyle creep can become a financial trap. The additional income doesn’t go towards wealth accumulation but instead gets consumed by higher living expenses. As these expenses become the new norm, it becomes challenging to revert to previous habits.

Lifestyle creep can have negative effects on financial stability, reducing savings and increasing debt. Why does this happen? Even as people earn more, they may still live paycheck to paycheck, simply covering their bills. Here are some suggestions to reverse lifestyle creep:

To reverse lifestyle creep, you first need to understand your current financial situation. Start by reviewing your recent bank and credit card statements. Look for significant expenditures that weren’t there a few years ago and compare discretionary spending with essential expenses. Subscriptions, dining out, shopping, entertainment, and travel are common areas impacted by lifestyle creep.

Once you have a clear picture of where your money is going and which expenses are new, you can begin to evaluate:

• Necessities

• Wants but not essentials

• Unnecessary items

To reverse lifestyle creep, align your spending habits with your true values and long-term goals. Consider why you want to control your expenses, ask yourself:

• Do you want to retire early?

• Are you saving for significant purchases like a house?

• Do you seek improved financial security?

Understanding your goals will motivate you to make changes and prevent lifestyle inflation from creeping back in.

You can write down your goals and break them down into specific steps. For instance, if you plan to buy a house, identify the down payment amount and set a target date. By setting clear objectives, you can resist the temptation of unnecessary spending.

The biggest challenge in reversing lifestyle creep is distinguishing between “wants” and “needs.” We often get accustomed to certain comforts that blur the line between desires and necessities. For example, lifestyle inflation has normalized purchasing the latest smartphone annually.

When making future purchases, consider whether they are truly essential or just items you’re accustomed to. Knowing what you “want” rather than “need” enables you to make consumption choices that align with your goals.

If you don’t already have a budget, now is an excellent time to start. If you do have a budget, you may need to reevaluate and adjust it to curb unnecessary spending. Allocate a specific portion of your income to savings, investments, and debt repayment. Then, set limits for discretionary categories like dining out, entertainment, and shopping.

Additionally, you could consider implementing the 50/30/20 budgeting method:

• 50% of income goes toward necessities.

• 30% is allocated to wants.

• 20% is for savings or debt repayment.

When trying to reverse lifestyle creep, aim to reduce spending in the “wants” category. If there’s a surplus, consider saving or investing it.

Using apps and tools, you can track your expenses in real-time and stay within your budget. Monitoring your spending regularly will help you better understand where your money goes.

If lifestyle creep has led to significant upgrades in your living environment, car, or other high-cost items, consider downsizing. Moving to a smaller apartment or opting for a more affordable car might feel like a step back, but it could ease your financial burdens and allow you to invest more for the future.

While it may pose challenges, reversing lifestyle creep doesn’t mean your life needs drastic changes. Over time, even small changes can yield significant impacts. For example, reduce dining out from three times a week to once a week. Or, if you have multiple streaming subscriptions, decide which ones you actually use and cancel the rest.

After making changes, setting boundaries is crucial to prevent lifestyle creep from quietly returning. Here are some suggestions:

• Practice “wait before buying.” If you’re considering a non-essential purchase, wait 24 hours to see if it’s truly something you need or want. This will reduce impulse buying.

• Automate your savings. Set up monthly automatic transfers to investment or savings accounts. If money is moved out of your primary account after you receive your salary, you’re less likely to spend it.

• Avoid keeping up with the Joneses. Lifestyle creep often stems from the desire to compare yourself to others. Remember, your financial journey is unique, so avoid comparing your situation to others.

Reversing lifestyle creep isn’t always easy, so celebrate your progress. Whenever you hit small milestones like saving $1000 or reducing discretionary spending, reward yourself in ways that don’t involve spending money. Relax with your family, pursue hobbies you enjoy—it’s essential to celebrate financial victories to maintain motivation and reinforce positive habits.

Research shows that investing in experiences rather than material possessions brings greater happiness and satisfaction. If you want to spend on non-essential items, look for enriching experiences that align with your values.

Once you shift your mindset, you can prevent lifestyle inflation and make more meaningful and joyful spending decisions.

As people advance in their careers and earn higher incomes, they often experience lifestyle inflation. However, it is possible to reverse lifestyle creep by identifying, taking action, and setting boundaries. Remember your long-term goals; the ultimate reward isn’t novelty gadgets or a larger apartment—it’s gaining the freedom to live by your values and financial security.