Dear Tori,
I’ve been experiencing lifestyle inflation for the last couple of years. I’m finally putting my foot down and cutting down on my expenses (my biggest vice is eating out) to increase my savings, but it’s a bit daunting! Do you have any tips and tricks to help ease the blow?
Ah, lifestyle creep. It’s so easy to let happen, and it’s the reason why even those who are financially well above average still live paycheck to paycheck.
First up, let’s define this common behavior –– lifestyle creep happens when you adjust your spending to match your new financial levels. A great example is moving to a slightly more expensive home every time you get a raise. Ideally, as you make more, you should save more, but it often doesn’t always work out that way. We keep using the same formulas for our budget rather than evaluating our values and adjusting accordingly.
In a society where keeping up with the Joneses is so deeply ingrained, it’s easy to start buying more when you finally have the money to do so — whether that means buying a new home, more expensive groceries, dining out, shopping, or traveling. The good news in all of this is that you can reorient at any time.
Here’s what I walk my clients through when they’re facing issues with lifestyle creep.
Have a Money Date
The money date is a 30 to 60-minute date I set with myself every single month to go over my statements and accounts to see how I’m doing financially. I use this time to make sure I’m spending within my values appropriately and make a plan for the upcoming month.
When you get a new job, a raise, or otherwise start making more money, it’s really easy just to keep living like you’ve been living but without paying any attention to how you’re spending. A money date helps keep you on track.
On your money date, go through all of your spending categories and figure out how much you’re spending on necessities, savings/debt, and “fun money.” Almost everything you spend can fall into these categories.
If you’re finding that a huge chunk is going towards fun money, dig deeper and start breaking it down. Is it shopping? Going out to eat? Travel? Something else? Which of those is non-negotiable in your budget, and where might you be able to adjust and use some of that cash for savings?
Personal Capital has free financial tools that I recommend for tracking your money dates and financial progress. You can use the tools to see all of your accounts in one place, so it makes your money date go a lot faster.
Check In on Your Values
While evaluating your budget, a good place to check in with yourself is figuring out your values. I’ve talked several times about values-based spending (spending that aligns with your values system), and I’ll keep talking about it because it’s personally one of the biggest helpers for me when I’m working through my budget.
I usually recommend picking three value categories that are non-negotiable and make your life better. Mine are food, travel, and nesting. Yours might be food, education, and fitness. Or maybe they’re pets, travel, and date nights. Either way, these three categories will help you narrow down areas where you might be spending just because you can and not because you really want to.
For example, in the question above, the writer mentions dining out as a vice –– but if they really love going out to eat, that doesn’t have to go away completely. It’s likely if you’re overspending in one area, you might be overspending in another. So maybe your dining out budget doesn’t change, but you decide to downsize your luxury car to a smaller used model or adjust your grocery budget to adjust to how often you’re eating out.
Another way to approach this is just setting some harder boundaries –– would it be more worthwhile to say, “I’m only going to eat out twice a week, but really make it count at places that I’m excited about?” That might be a compromise that you can live with.
The other great thing about spending in alignment with your values is that when your values change, your spending can, too! That’s why I recommend a money date at least once a month to check-in and see how you’re feeling.
You might even find that you just liked eating out because it was convenient — not because you really loved it. Who knows!
Set New Goals
Finally, the best thing you can do for yourself if you’re finding yourself in lifestyle creep is to set some new goals. Lifestyle creep almost always happens because we’re too loose or flippant with our financial goals.
Trust me — I get it. Spending is SO fun when you’re first starting to really thrive. The sheer dopamine is enough to get even the most tight-fisted of us to start swiping with abandon. However, whether you have $100 or $1,000,000, you need a plan.
The minute you begin to grow financially, start having conversations with yourself or your partner about how you’d like your money to be spent moving forward. What big goals do you have for yourself? Are you contributing towards retirement? Are you planning to buy a home in the future? Have kids? Send those kids to college?
These questions are great starters to help you figure out how you need to use your money. Do you want to retire at 45? What do you need to do with your money in terms of investments to get you to that goal?
If you start from your longer term goals and work backward, you’ll know exactly how much you’ll have to spend in the meantime. This will help you reign in that temptation because you’ll have a set goal in mind that you’re working towards.
I use Personal Capital’s Retirement Planner to set my big-picture, long-term plans. You can run different scenarios and create a spending plan for retirement.
The Bottom Line
Lifestyle creep is totally normal and happens to even those of us who are really good with money. It’s tempting to go ham when you start making more, especially if you came from a background of barely making ends meet. The important thing to remember is that you can change your path at any time.
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Personal Capital compensates Tori Dunlap of Her First $100k (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
