Why Lifestyle Creep May be Killing Your Financial Plan (SPOOKY EDITION)
Hi everyone, and welcome back to Melissa Making Cents!
As a CERTIFIED FINANCIAL PLANNER™ and a financial coach, I help people with their finances day-in and day-out. In fact, I help people through all different types of transition periods, both the good and the bad. Believe it or not, almost everything and every major milestone in life comes with some financial impact to your income or expenses. There are some that are obvious, weddings, college, or having kids certainly create expenses that weren’t there before.
As these events in life pile up, many people (understandably) get caught up in the moment of celebration and totally forget that they should be actively addressing the changes that are being made to their financial life. Our spooky Halloween-themed topic today is LIFESTYLE CREEP, how to avoid it, and how to fix it. (Okay, maybe it's not Halloween-themed, but it has creep in the name… that’s spooky, right?)
What is Lifestyle Creep?
Lifestyle creep, our topic today, is one that’s fit for Halloween! It’s like a ghost - you often don’t see it sneaking up on you (even if the audience might) until it jumps out right in front of your face and scares you! However, lifestyle creep is a monster that financial planners are constantly fighting for their clients; it isn’t isolated to the October spooky season.
In terms that are more reflective of real life, lifestyle creep is essentially what it sounds like. It's when you become slowly accustomed to outliving your income. In essence, that means you get a little bit too used to spending more money than you should on services or goods that you may not actually need. Lifestyle creep is a tricky thing to deal with, because as the name suggests, its something that slowly creeps into our lives and eventually takes hold. Perhaps the most unfortunate thing about lifestyle creep is that when we eventually recognize it's taken hold and that we need to cut-back on some of our non-essential expenses, we really feel like we’re losing something.
And that feeling of loss is something that makes lifestyle creep especially difficult to deal with psychologically. For many, it makes them feel like they’re taking a step back from their “real” lifestyle and quality of living, even if the lifestyle we’ve become accustomed to isn’t something that was ever really affordable to us in the first place. Remember, lifestyle creep isn’t something that just clicks into place; it’s something we slowly become used to over weeks, months, or years of ignoring our financial plan and or budget.
If you’re reading this and finding yourself in the grasp of lifestyle creep - DON’T worry, DON’T panic, and DON’T give up. As with most financial planning, the first step is recognition and the second is action. Both of those steps are empowered through education and knowledge. A great first action to take may be to read through some of the helpful tips and tricks I’m about to lay out through the rest of the article. Once you’re done with that, consider revisiting your monthly budget or setting a meeting with a certified financial planner to get back on track!
Some Real Life Examples of Lifestyle Creep
A theoretical understanding of lifestyle creep is great, but it's something that can be difficult to acknowledge or “catch” in real life and real time. That’s why I’m going to spend just a little bit of time in this section of today’s post discussing some of the warning signs and real-life examples of lifestyle creep. If you catch any of these things happening to you, you might be in the midst of lifestyle creep!
Obviously, impulse purchases are going to happen. Heck, even if you’re doing something mundane, like going to the grocery store, you’re likely going to pick up one or two things you don’t need or weren’t on your list. It happens to all of us. However, when impulse purchases become a regular thing that you start anticipating - it might be a sign that impulse purchases are taking over your regular habits and lifestyle creep could be setting in.
To piggyback just a little bit off of our impulse purchases section, it should be noted that lifestyle creep is almost definitely setting in when impulse purchases shift from “little happies” like an unplanned ice cream carton to the latest and greatest in expensive luxury items.
Unlimited Subscriptions (That You Don’t Use)
These days there are basically an unlimited number of services that you can subscribe to. Whether it's a streaming service, a box delivery, or whatever else - these are some of the most immediate signs of lifestyle creep. Luckily, these also seem to be one of the easiest to rectify - as with most subscription services, you can cancel any time. Just be sure that you’re ignoring the bombardment of re-subscription deals that will inevitably be sent to your email inbox.
“But I Can Finance It!”
Another tell-tale sign of lifestyle creep, that’s a little more difficult to snuff out once it's begun, is financing. I know, I know - it's very enticing to be able to finance something you want really badly but can’t afford right now. And financing things here or there is okay - as long as it's something you’ve been planning for, worked into your financial plan, and need. However, financing every major purchase you want to make quickly can land you in a world of mini-charges and debt. Most of the time the only way to fix this is to continue making payments and get out from under debt, so it's best to avoid overfinancing purchases in the first place.
"Treat Yo Self" Days Become a Little too Regular
A pre-planned “Treat Yo Self” day can be a great and cathartic thing. However, when we do this, we need to plan and budget for it. Go into a “Treat Yo Self” day with a dollar cap-amount that you won’t exceed. Also, make sure that treating yourself doesn’t become too frequently.
A Growing Income and Shrinking Savings
If you notice that your savings is constantly shrinking even if your income is increasing, it’s likely that you’re a victim of lifestyle creep.
How to Fight Back Lifestyle Creep Once It's Taken Hold.
Luckily, there are great strategies to mitigate lifestyle creep once it's taken hold. One thing you can do that will help you prepare psychologically for cutting back is creating a ranked list of your non-essential purchases and expenses. Rank them like a stoplight - green is something small that’s justifiable, yellow is something a bit more questionable, and red is something you definitely shouldn’t have spent money on. Once you’ve done that it becomes easier to 1st take accountability and move on and 2nd recognize redlight purchases before/during/after they’re happening (which will hopefully help you stop making them.
Another thing to recognize is that lifestyle creep may need to be treated like a weight loss plan. In other words, with both lifestyle creep and weight gain - it's something that comes on slowly and unfortunately in most cases it's something that needs to be corrected slowly too. Being slow, methodical, and purposeful cutting back on unnecessary expenses helps mitigate the risk that you’ll go into shock and have whiplash returning to an affordable lifestyle.
Next, remember that cutting back doesn’t mean that you can’t ever treat yourself or have fun again - it just becomes something that we have to be more aware of. Planning and budgeting for large purchases or treat days is KEY to having the best of both worlds. However, it can’t become something that you do only to ignore. If you’re planning and budgeting, do yourself the favor of sticking to that plan and budget. Lastly, remind yourself what you’re working for. You aren’t planning, budgeting, investing, etc. so you can have the newest iPhone, you’re doing it to secure your financial future.
Strategies to Avoid Lifestyle Creep in the Future.
There are also tactics and strategies that can be implemented to recognize lifestyle creep and stop it in its tracks before it gets a real foothold in your life.
First, do your best to recognize the early warning signs of lifestyle creep. If you know what you’re looking out for then you’ll know what to avoid. Watch your spending, and stick to the budget you or your financial planner has made. Too much effort goes into creating a budget to simply ignore it.
Check in regularly with an accountability partner. For many people, that accountability partner is their financial planner, which is great. However, you could also rely on a spouse, parent, or close friend to help you stick to and achieve your financial goals. The key is to find someone who’s willing to help you, but not judge you. That’s why an objective third-party, like a financial planner, is a great accountability buddy.
Lastly, don’t get caught up in the “keeping up with the Joneses” mentality. There’s always going to be someone out there making more money, living more extravagantly, or spending more money than you. Just remember to ask yourself “is this excessive?” or “should I really be spending money on this?”. Sometimes the Joneses aren’t doing so great, even though they’re living extravagantly from the outside looking in.
A Link Between Emotional/Mental Wellbeing and Lifestyle Creep.
Honestly, I’m not aware of any professional studies on this; however, through experience in helping my clients I can say with relative confidence that there’s some connection between lifestyle creep and mental health or emotional wellbeing.
Excessive spending is too often used as a coping mechanism. It’s often used by people as a way to self-medicate and feel better quickly. This mixed with an avoidance of watching your budget or watching your finances because of anxiety is a vicious cycle that leads to lifestyle creep, even if the person is aware that it's happening. In other words, make sure that you’re taking care of yourself. And I don’t mean by spending money, I mean make sure that you’re taking active steps towards bettering and maintaining your emotional wellbeing. It’s the kindest thing you can do for yourself.
If you or someone you know is stuck in the jaws of lifestyle creep, please call or email to schedule an appointment with me. We can create a financial plan that can helps you create and stick to healthy financial habits, get out of debt, and achieve your dreams!
Until next time...this is Melissa Making Cents!
Melissa Anne Cox, CERTIFIED FINANCIAL PLANNER™, is a College Planning and Student Loan Advisor and Financial Coach in Dallas, Texas.