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 happens when you’re able to meet your living expenses, but you come into extra cash and inevitably increase your expenses. For example, let’s say you’re able to comfortably pay for 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 or savings, you decide to go out spend the entire amount of the extra income.

So how should you control that extra income so you can still meet your goals? First, track your expenses and develop a budget. Tracking expenses helps you see how much you’re spending on X. A budget isn’t meant to be shaming. It’s a blueprint. Tracking expenses helps to control spending. 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.

By tracking expenses, you can see that perhaps you’re overspending in some areas, and can therefore reduce spending. It helps with control.

The Queen of (Financial) Creep

I was the queen of lifestyle creep. If I got a new job, I spent the extra income. If I got a raise, I celebrated. There was always an excuse or justification to spend extra (unexpected) 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. ADHD can be blamed for that…in part. It didn’t help that I had encouragement from my mom, who would tell me “te lo mereces, hija,” which means “you deserve it, daughter.” Instead of prioritizing my spending and saving, I was prioritizing only the spending. I had no control.

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.

Tracking expenses and having a budget doesn’t mean you’ll never eat out again and it doesn’t mean you have to curtail your spending. It just means aligning spending and saving with the things that are important and help you meet your goals.

How I Deal With Lifestyle Creep

How do I do it these days? I pay myself first. This means I set up auto transfers from my main checking account to investments. I deposit random checks (like rebates or settlement checks) into my high-yield savings account and have direct deposit into savings from my paycheck. Then I pay for rent, bills 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.”

One trick a lot of coaches and money nerds advise is to wait 24 hours (or whatever period of time) before buying something. If that works, go for it! For me, it could work 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 go to the grocery store without a list. I always forget what I’m supposed to buy and have to call home.)

Q&A With Money Coach Debbie O’Hara

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, 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 involves changing behaviors. 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).

You can do the following:

• Immediately ask payroll to directly deposit $200 into savings and begin building up a fund or saving toward a goal. Make sure you have a reason to save that $200
• Immediately ask payroll to put the $200 into your retirement plan

Or stagger the savings like this:

• For six months, have $100 directly deposited into savings or retirement
• At the seven month mark, have $200 directly deposited into savings or retirement

If it were me, I’d stagger the savings because the shock of not having $200 in a paycheck all at once would be sort of shocking.

Once you get to where you’re doing the full $200, celebrate! It’s only fair. After all, you made a change that will pay off in the long run. It’s good preparation for the next time you get a raise or a surprise chunk of money!

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 (since you’ve been tracking expenses, you’ll have a good idea) 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!

7 Tips for Dealing With Creeps

1. Once you know the date your increase/raise/bonus goes into effect, 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. If you don’t have an IRA, open one! Set up auto transfers to your brokerage firm. It’s super easy and customer service reps can walk you through the process.
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 and set up auto transfers to a savings account.

Don’t think of your extra income as a way to spend more money. Planning ahead will help control any spending impulses. Throw some at debt and savings, and once you’ve done that, buy something you’ve been wanting.

The idea of controlling spending and making plans for a raise or bonus isn’t meant to deprive you of joyful spending. The whole point is to be intentional about spending so you meet your goals and align with your values.