Image of shopping bags and shopping cart with laptop in background

Don’t Be a Creep! How to Avoid and Reverse Lifestyle Creep

Lifestyle creep.

You know when you get that raise you’ve been after? Or you got a new job that pays you more than the last job? Or your side hustle takes off? It’s cool to have more money in your life for sure. But a few months down the line and you’re wondering where all that extra money went. You find yourself stretching each paycheck…again. This is lifestyle creep and it can, well, creep up on you.

Lifestyle creep is when you’re able to meet your living expenses, but you come into extra cash and you increase your expenses. For example, let’s say you’re able to comfortably pay your housing, food and auto expenses, and maybe carry $1000 in credit card debt. And you either get a job that pays you $500 more a month or you get a fat tax refund. Instead of putting that extra income toward debt, you decide to go out spend the entire amount of the extra income.

So how should you get an overall look at your finances to see how to avoid lifestyle creep? Start with creating a budget. It’s your blueprint. Think of it as your map to financial success. It will help to see where and how to allocate this new injection of cash in your life.

TABLE OF CONTENTS

How I deal with lifestyle creep

A Q&A with my money coaching friend Debbie O’Hara

Reverse the Creep

Eight Tips for Dealing with Lifestyle Creep

Creepy Queen

I was the queen of lifestyle creep. If I got a new job, I spent my extra income. If I got a raise, I celebrated. There was always an excuse or justification to spend any extra money. I didn’t save or invest. I KNEW I should be saving and investing, but I chased the dopamine hit that came with something new and shiny. Living in the moment. Instead of prioritizing my spending and saving, I was prioritizing only the spending.

There was nothing magical about how I changed. I just got tired of not having savings and not investing for retirement. But I also know myself and knew that if I set up goals that were too stringent I’d fail. I had to be mindful of my spending and balance that out with saving money.

How I Deal With Lifestyle Creep

How do I do it these days? I pay myself first. This means I set up auto transfers so that the money isn’t in my main checking account. I deposit random checks into my high-yield savings account and have auto transfers set up to go into my retirement and taxable brokerage accounts. Then I pay bills, rent and groceries. After that, I decide how much I need the rest of the month to buy nonsense crap and transfer that amount into a second checking account that I’ve nicknamed “Bullshit spending.”

Some financial experts advise waiting 24 hours before making a purchase. That may work for some and it could work for me if I remembered what I wanted to buy in the first place. If I’m on a website and see something I like, I’ll put it in the cart. If I don’t need it right away, it’ll sit there until the next time I log in. I have ADHD so the next time, I won’t remember why I wanted the thing in the first place. (This doesn’t work so well when I’m tasked with buying milk and then get to the store and forget what I’m doing there.)

Laptop showing shopping images which contribute to lifestyle creep

Q&A With Money Coach Debbie O’Hara

Image of Debbie O'Hara

To get advice on how to prepare for lifestyle creep, I talked to New Jersey-based Debbie O’Hara, money coach and speaker at How Debbie Saves. Debbie has been a money coach for over five years. She works with women and entrepreneurs to break down mindset blocks that hold them back from managing their money stress free, pay off debt and reach financial freedom.

Deborah: What are some mistakes people make when they get a raise or come into money unexpectedly?

Debbie: People are feeling so limited and restricted with their income so when they get an influx of cash, whether it’s a bonus, raise, holiday gift or a tax refund, they feel that they work so hard for their money that they should treat themselves. So they spend it on something that can give them a temporary moment of happiness, only to then feel guilty for not applying that money towards their goal of having a savings account, a travel fund or paying down debt. Now they are back where they started and feeling like they are just not good with money. Which makes them feel limited and restricted and have a negative mindset all over again.  

DJM: How can someone prepare for an influx of cash, such as a year-end bonus or small inheritance? 

DO: That’s a hard question to answer. I don’t believe in a formula or a step-by-step process when it comes to personal finance because each person is in a different place in life, whether they have debt, lack money in savings, have never traveled, etc. Also, any savings should be in a high-yield savings account so your money makes you money. Of course, I also recommend having a Roth IRA and having a goal of fully funding it as well. But again, it depends on where they are in their financial journey.

I do believe that when you have a strategy in place for moments like this that you can accomplish your financial goals.

Debbie o’hara

DJM: When is it OK to spend some of the money on something frivolous? 

DO: I truly believe that the way to manage your money stress free and enjoy the income you work so hard for is to treat yourself.  Without treating yourself,  you may tend to budget restrictively which will only lead to you breaking your budget. (You may end up) quitting the process all together and then have a negative mindset when it comes to how you think and feel about your finances. That only sets you back to possibly overspending and accumulating more debt.  So having you in your budget is important.  Of course, there should be limits to it. I would love to have a lobster dinner every week, but I choose to have a date night once a month with my husband where we usually have seafood! LOL

DJM: What is one way people can change their mindset to continue living as though they never got that extra money in the first place? 

DO: A strategy whenever there is an influx in income is to transfer that amount out of your checking account and into an account where it can sit, collect interest (like a high-yield savings account). Then designate a purpose for that income so it’s not mixed into your regular account and spent without thought.

To learn more about Debbie and her work, follow her @howdebbiesaves on Instagram.


Reverse Lifestyle Creep

Because lifestyle creep is subtle, you may not sense it at first. Reversing lifestyle creep basically means a return to your previous income and living off of that. This will involve a change in mindset. Let’s say that six months ago you were making $2000 a month. You got a raise of $200 per month five months ago (this means you brought in an extra $1000 over the past five months). Perhaps you want to live off your previous income of $2000.

You can either a) immediately put that $200 into savings or ask your payroll department to move that into your 401K; or b) work backwards little by little.

If it were me, I’d choose b) because the shock of not having that extra $200 in one fell swoop would not go over well. You could start with saving $50 the first month, then $100 the second month and $200 the third month. It’s sort of a reverse stagger. By the time the fourth month rolls around, you’ll be on your way to saving $200 a month. Then you can celebrate your success and be prepared for any future raises or extra income that comes your way.

Other ways to reverse lifestyle creep would be to cancel any new subscriptions (or reduce frequency) or go back to a basic gym membership instead of the one that gives you access to the spa. Look at your spending over the past three months and see where you spent money on things that don’t bring value or joy into your life. Find substitutions or cut them out little by little. Tapering off works wonders!

Eight Tips for Dealing With Creeps

  1. Once you know the date your increase goes into effect, for example, with a raise, arrange with payroll to increase your retirement contribution.
  2. Review your goals. Are you maxing out your IRA or Roth IRA? Bump up your contributions.
  3. Do you have an emergency fund? Get it started or add to it (hopefully in a high-yield savings account, or HYSA). Set up auto transfers to go into effect as soon as you expect the extra cash to hit your account.
  4. Do you have sinking funds? Sinking funds are savings accounts for planned expenses. Do you need to replace your roof next year? Buy new tires? Set up auto transfers to these accounts.
  5. Do you have debt? Make extra payments on your debt. Once the debt is paid off, take that extra money and add it to a savings or retirement account.
  6. Pretend the extra funds aren’t available by making plans for them before they come to you. This means that you continue to live with your previous income.
  7. Set up systems for your money. Talk to your payroll department, set up auto transfers to a savings account. Some payroll systems can direct deposit into two or more accounts.
  8. Do you have a Roth IRA or a Traditional IRA? Get one started. They’re super easy to open and many brokerages allow you to open one with $0. This is perfect if you get a raise and want to get started. Set up the auto transfer from your checking account to your brokerage account the same week you get your raise.

Don’t think of your extra income as a way to spend more money. Plan for it. Whether it’s to pay down debt, invest or to buy that special something you’ve been longing for, be sure to have an intention. If you want to use the first month of your raise to take a fabulous trip, that’s great! Just make sure you have a plan for the second month, and so on. This way, you reach your financial goals faster!

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