Lifestyle Creep is the idea that as you make more money, your lifestyle increases to fill the gap. It is an endless cycle where making more money is quickly followed by a need to make more money. According to Investopedia, Lifestyle Creep occurs “when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities”.
In simpler terms, you burn it as fast as you earn it.
Can you relate?
Throughout most of my 20’s, Lifestyle Creep quickly gobbled up any extra money I was making. Every raise in pay was used as an excuse to upgrade something– my wardrobe, how often I ate out, home decor. You name it and I probably upgraded it. I even used my first promotion as a justification for going over budget when we built a house in 2005. Not noticing how my own lifestyle crept up as my income rose was a BIG part of what kept me stuck in unfulfilling jobs for many years.
As I became mindful of our finances and how we were spending money, the pace of the creeping slowed and for a while, it even stopped. Any extra dollars that came our way were put to work on our financial goals. Tax refunds, corporate bonuses, and pay raises were no longer frittered away but instead purposefully used to pay off our debt and build savings. This process had the wonderful side effect of healing my relationship with money, and more specifically, my relationship with spending money.
Fast forward from those early days to 2018. We noticed that our lifestyle had begun to creep back up again so we sat down and evaluated what was going on. Rather than give ourselves an annual bonus we came to the conclusion that we needed to invest our profits back into our business. We also made the bold decision to decrease our salaries by about $10,000 each, which is almost unheard of in entrepreneurial circles.
Looking back I remember what a difficult decision that was to make. Who couldn’t use an extra $20,000 each year?! And what a blow to the ego! Isn’t it a sign of failure when you start paying yourself LESS MONEY?! That’s how it certainly felt at the time. I felt like I had done something wrong.
In retrospect, our lives aren’t any worse off now than before we made that decision. If I’m being honest, I feel like we’re better off. Our needs are more than met. So are our wants. As it turns out, having that extra money in our paycheck wasn’t serving us. Sure, we were spending it but it wasn’t adding any tangible value to our lives. (And deep down, I think I already knew that.) When we asked ourselves the hard question of how this money could benefit us in a better way the answer we landed on was to keep it in the business.
Someone might hear my story and only see it as a failure, but from where I stand now I see a profitable business that is 100% debt-free (and owned by yours truly)! Success rarely looks the way we pictured it.
Being able to cash flow large purchases without depending on a bank opened up new business opportunities. Having the additional capital allowed us to stabilize the cash flow in our business, invest in new inventory, and month after month our profits grew.
Knowing that our business finally had ample cash reserves gave me peace of mind. I didn’t fully appreciate how important these reserves would be until the COVID-19 pandemic landed on American shores earlier this year. Having cash in the bank gave me a great deal of peace of mind during those early months when our whole world felt chaotic and uncertain. I know many businesses didn’t fare as well.
When you aren’t in command of your finances, an increase in income will inevitably lead to an increase in your cost of living. The “Treat Yo Self” meme culture that is rampant on social media encourages people to blow hundreds if not thousands of dollars on feel-good whims. If you find yourself walking around a car lot immediately after getting your new promotion, you might be rushing into a commitment that could feel like handcuffs later. I’m all for celebrating wins so I want you to treat yourself in a way that shows kindness to your future self and doesn’t feel impulsive.
Real talk— Your future self won’t be as thrilled as you about signing that 3-year lease if it results in an empty savings account for her down the road. Think about her before you rush into a longterm financial commitment.
What can you do next?
Aim to spend at least 30 minutes reflecting on all the various pay raises, promotions, and financial windfalls along your personal timeline.
Consider how your lifestyle changed with each one.
What got more expensive? What once felt like a want that now feels like a need?
Knowing what you know now, if you could go back and do it all over again would you make the same choices? What would you change?
What changes can you make now?