The Lifestyle Creep: What Is It & How To Avoid It

Vocabulary Review:

Get ahead on (phrasal verb) - to make more progress on something than what is required, especially so as to build a cushion for the future.

Example: She wanted to get ahead on her rent payments before the new semester started.

Creep (verb, "move slowly") - to advance gradually and almost unnoticeably.

Example: Traffic began to creep forward as the accident scene was finally cleared.

Inconsequential (adjective) - not important; having little or no significant effect.

Example: He brushed off the comment as inconsequential and moved on with the meeting.

A norm (noun) - a standard or usual practice that is considered typical or expected.

Example: Working from home has become a norm in many industries since the pandemic.

Affliction (noun) - something that causes suffering or hardship, often a persistent problem or condition.

Example: Chronic insomnia has been an affliction for him since college.

To depict (verb) - to show or represent something through a picture, description, or story.

Example: The mural depicts scenes from the town's fishing history.

Go into debt (phrasal verb) - to borrow money or spend beyond one's means, resulting in owed money.

Example: They went into debt after financing a wedding they couldn't really afford.

To mirror (verb) - to closely resemble or reflect something else

Example: The plot of the movie mirrors real events from the director's own childhood.

Imprudent (adjective) - not showing care or thought for the consequences of an action; unwise

Example: Quitting his stable job without any savings was an imprudent decision.

Indulge (verb) - to allow oneself to enjoy a pleasure, especially without restraint.

Example: On weekends, she likes to indulge in long naps and expensive chocolate.

To live paycheck to paycheck (idiom) - to spend all of one's income on necessities before the next payday, with little or no saving.

Example: Even with a decent salary, many families still live paycheck to paycheck due to rising rent.

To blow (money) (verb) - to spend money carelessly or wastefully, often all at once.

Example: He blew his entire bonus on a weekend trip to Las Vegas.

FOMO (noun, abbreviation for "fear of missing out") - anxiety that others are having enjoyable experiences from which one is excluded.

Example: FOMO drove her to buy concert tickets she couldn't really afford.

Get a grip on something (idiom) - to gain control or a better understanding of a situation.

Example: He finally got a grip on his workload after hiring an assistant.

Astonishing (adjective) - extremely surprising or impressive.

Example: The recovery time after the surgery was astonishing to the doctors.

Discretionary expense (noun phrase) - a cost that is not essential and can be reduced or eliminated without major hardship.

Example: Gym memberships and streaming subscriptions are common discretionary expenses in a household budget.

The Lifestyle Creep: What Is It & How To Avoid It

For a lot of us, it seems that nothing is ever enough. We have the idea that if we earned a little more money, everything would change. We tell ourselves that we would finally get ahead on our savings or start investing; maybe we could even open up a retirement account. But then when we finally get a raise or a promotion, the opposite ends up happening; our salary gets bigger, our lifestyle gets nicer, and we still end up living paycheck to paycheck. It’s the classic lifestyle creep.

The lifestyle creep (or lifestyle inflation) is when more money equals more spending. It’s when your salary increases but your savings don’t. And it’s by no means inconsequential - the lifestyle creep is one of the easiest ways to ruin your finances. 

What are the signs?

One of the most common signs of the lifestyle creep is when something that used to be a treat becomes the new norm. One day you treat yourself to a 7$ specialty latte from Starbucks, and before you know it, it's part of your morning routine. Or when dining out once a month becomes once a week. These small upgrades can seem insignificant, but they can cost hundreds of dollars a month.

Unfortunately, some lifestyle upgrades aren't just hard to notice; they're invisible. Subscriptions (like Netflix and YouTube Premium) and food delivery apps (like Uber Eats) are the worst - we get used to these things without really noticing. In fact, Gen Z spends up to $500 a month on services like these. 

Why do we do it?

Keeping Up With The Joneses

The lifestyle creep has gotten a lot of attention on social media recently, but it is nothing new. It’s been an American affliction for so many years that they even have an expression for it: Keeping up with the Joneses. It refers to a newspaper comic from the 1960’s depicting a family who spends all of their money (and even goes into debt) trying to match the lifestyle of their neighbors, the Joneses. When the Joneses buy a new car or switch to more expensive organic eggs, they do too. While the comic strip is roughly 85 years old now, it closely mirrors the way we live today.

The Diderot Effect

Sometimes the reason for such imprudent behavior is hard to explain. It’s like the Diderot effect. The Diderot effect is a law based on the story of a French philosopher, Denis Diderot, who, after buying himself a fancy new robe, decides that he needs a fancier sofa… and then a fancier carpet. He continues until he has upgraded everything he owns. Although scientists call this “hedonic adaptation” (the brain's tendency to quickly normalize positive changes and then seek more), the Diderot effect shows how once someone indulges in one purchase or one lifestyle upgrade, they can't stop.

Who is likely to do it?

While the lifestyle creep can affect anyone, certain types of people are significantly more likely to make this mistake than others. 

High Income Earners:

You might imagine that those with high salaries would be more financially responsible than the rest of us, but it turns out that the opposite is often true. Ironically, high-income earners (like investment bankers, doctors, lawyers, etc.) are often the worst at managing their finances. One survey from Goldman Sachs found that 40% of those earning more than 300,000 dollars per year live paycheck to paycheck. Imagine making 25 thousand dollars per month and still finding a way to blow it all. 

Young professionals:

The next group especially at risk is young workers. While previous generations often focused on building savings for things like buying a home or starting a family, many young professionals today can’t seem to get a grip on their spending. In fact, nearly 70% of Gen Z say that financial FOMO has caused them to spend money on things that are not essential.

Americans 

In America, the lifestyle creep is not just common, it’s expected. Astonishingly, numerous workplace studies from the U.S. show that clothing and appearance directly impact hiring, wages, and even perceived ability. It is likely for this reason that 40% of adults in the U.S. admit to intentionally overspending in order to maintain their appearance or impress others. And that’s not all, another study shows that as much as 78% of working Americans have no money left over at the end of the month. 

How Can We Avoid The Lifestyle Creep?

Making cutbacks is something nobody enjoys. Giving up the habits and the lifestyle that we thought we earned feels like torture. But living below your means and learning to avoid the lifestyle creep can give you true freedom.

Cutting off bad influences:

Sometimes it may be necessary to end certain relationships. Millennials and Gen Z have learned about the lifestyle creep, and they’re actually scared of it. 47 % and 36% of millennials and Gen Z say that they would end a relationship with a spendy friend because they want to avoid the lifestyle creep. In fact, over 35% of millennials and Gen Z agree it's important that your friends are in the same economic class.

Don’t Live In Denial

Another more practical tip is to audit yourself. You don't need to spend hours doing this, there are a myriad of personal finance apps (like Rocket Money or Spendee) that will analyze your bank statements and categorize your expenses for you. Acknowledging where you're spending your money (instead of being in denial) is the first step in getting your finances under control and helps avoid those small, easily forgotten lifestyle upgrades that will drain your bank account.

Distinguish wants from needs

It’s sort of comical to hear that Millennials and Gen Z can't tell the difference between basic necessities and non-essentials. In a survey asking millennials and Gen Z to categorize their spending into groups of either basic necessities or non-essentials, 85% of the participants listed common discretionary expenses (such as skin care, makeup, food delivery, streaming services, gym memberships, and dining out) as basic necessities.

Questions:

• Have you ever experienced the lifestyle creep before?

• Do you have any financial habits that you want to stop?

• Should people try to live below their means?

• Do you have any friends who spend too much money?

• How often do you treat yourself to something nice?

• Can money buy happiness? Why?

• Do you think having a lot of money saved changes how you feel?

• Did you learn good financial behaviors from your parents?

• Should children be taught personal finance in school? Why?

• Do people in your country use credit cards?

• Why do you think some people cannot distinguish wants from needs?

• Do you think social media encourages people to spend more money?

• Do you ever feel FOMO from social media?

• Do you think its important to wear expensive clothes to interviews or work?

• Why do you think 78% of Americans have no money left at the end of every month?

• Which discretionary expenses would you have trouble quitting?