What is Lifestyle Creep?

by Jan 28, 2021Debt, Personal Finance, Success

Ever heard of lifestyle creep? 

Also called lifestyle inflation, lifestyle creep is the insidious phenomenon by which expenses increase as income increases. 

Here is a simple example to explain the concept:

  • In college, you could feed yourself for a week with $10.
  • As a new grad, lunch with friends to celebrate a birthday costs $15.
  • As a seasoned vet, a nice dinner easily costs $30.

That’s lifestyle creep: your discretionary expenses increase as your disposable income increases (as a reminder, disposable income is the money left over after paying for necessities like housing, transportation and food).

Here is another example:

  • In college, you could feed yourself for a week with $10.
  • As a new grad, a bag of fancy coffee costs $10.
  • As a seasoned vet, a fancy grande coffee and a double fudge brownie: easily $10.

Again, that’s lifestyle creep: as your income increases, your spending increases proportionally. 

Bottom line: more money = more temptation, more impulse purchases, more rationalization that you deserve more stuff. 

A frequent comment when lifestyle creep is discussed is: “Wait a minute, I haven’t gone through 8 years of college to live like a student for the rest of my life! I deserve to eat organic blueberries. I deserve to buy a leather couch. I deserve to drive a nice car. I deserve to live in a nice house.” 

Of course. We get it. Although “I deserve it” sounds like an entitlement mentality, there is some truth to the concern. 

As our income increases, it’s only fair that we eat healthier food and live more comfortably. In addition, driving an old clunker is not safe, not to mention that monthly repairs may end up costing more than buying a newer car. 

However, elevating your car as a status symbol or a sign of strength is exactly what slick advertisers want you to do. 

So yes, a safer car is a wise expense. But this doesn’t mean that spending lavishly, living above your means and keeping up with the Joneses are good ideas either. 

The fact is, although people might make more money, many don’t seem to make progress. They never have enough money to save or invest. They drown in bills. Supposedly almost 80% of Americans live paycheck to paycheck, no matter how much their income increases. It’s a never-ending vicious cycle. 

So what are we supposed to do? Is there a solution? Is there a middle ground? Can we compromise and still live happily ever after? 

The answer is: ABSOLUTELY! 

Here are 10 simple rules to live by. 

One important caveat: these rules likely apply more to a new grad than a seasoned vet who has saved diligently and invested wisely for 40 years.

1. Budget 

Stick to a budget. It is absolutely, positively acceptable to buy stuff, but ideally after you’ve paid yourself first (i.e. to save and invest) and have taken care of your bills. At Vet Financial Summit we actually recommend a dedicated “fun” account. 

2. Plan 

Specifically budget for large expenses. You could save in a dedicated account to buy new furniture, or to build up a down payment for a car or a house, or to go on a trip to Bhutan or American Samoa, or to pay for your wedding.  

 3. Fun 

The beauty of a budget is that if you use percentages, rather than a set amount, your “fun” account increases as you make more money. Let’s say you fund your fun account with 5% of your paycheck (it’s merely an example to make the math easy, not a target). 

5% of a $1,000 paycheck is $50. 

5% of a $2,000 paycheck is $100. 

5% of a $3,000 paycheck is $150. 

As you can see, the more you make, the more fun you can have, yet you remain reasonable with the percentage. 

You could even conceivably decrease the percentage, and decide that 4% of $3,000 is enough each month. Again, the amounts are irrelevant, it’s the concept that counts. 

4. Increases 

A raise, a bonus, a tax refund, a monetary gift could be used to pay down debt, save or invest, rather than to buy a large screen TV. 

5. Wants 

Understand the difference between a want and a need. As a reminder, eating is a need. Organic mangoes are a want. To be clear: there is nothing wrong with preferring organic mangoes! It’s a matter of priority. 

6. Tradition 

Just because “tradition” or peer pressure says that you should celebrate a big event at the best (translation: most expensive) restaurant in town doesn’t mean that you should. Consider having a cookout or a nice dinner in the comfort of your home. 

7. Pressure 

Peer pressure is a huge motivation to overspend. Jim Rohn, the motivational speaker, famously said, You are the average of the five people you spend the most time with.” 

Be wary of friends who go on frequent buying sprees. In fact, finding friends who have the same priorities and values as you do may help you on the path to financial success. 

Harsh? Maybe, but we’re talking about your financial future here. 

8. Kids 

Peer pressure also affects kids, who may feel that they “need” the newest iPhone or the latest sneaker craze. Instead, we can set a good example by teaching them the value of money early on (the book “Smart Money Smart Kids” by Rachel Cruze and Dave Ramsey can guide your discussion depending on your kids’ ages). 

 9. Therapy 

Beware of “retail therapy.” Buying stuff may give you a mood boost in the short-term, but you may be remorseful when you see your credit card bill. 

10. Automate 

Automate your finances. With online banking, it’s become very easy to allocate a certain percentage of your income to various other accounts: savings, retirement, vacation, emergency fund, debt, down payment, fun etc. Also strive to automate as many bill payments as possible. 

Lifestyle creep is a real threat. It takes some serious discipline and willpower to overcome it. Advertising, movies, peer pressure, fashion, social media are constant temptations to upgrade our lives. The latest iPhone. A bigger wedding. A farther honeymoon. A bigger diamond. A bigger house. A bigger TV. A bigger couch. A bigger car. 

Don’t be a victim. Awareness is the first step. Certainly don’t live like a pauper or a student forever. 

Be aware, be reasonable, be disciplined, and you will find that you can afford nice vacations throughout your career, and have a comfortable retirement when you turn the page.

Phil Zeltzman, DVM, DACVS
Meredith Jones, DVM
Co-Founders of Veterinary Financial Summit