What Is Lifestyle Creep?
Lifestyle creep occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities. The increase in discretionary income can happen either through a higher income or lower costs.
A hallmark of lifestyle creep is a change in thinking and behavior that sees spending on nonessential items as a right rather than a choice. This leads to an attitude of “you deserve it,” overshadowing the opportunities that saving money could afford. Combating lifestyle creep involves diligent budgeting and discerning wants from needs when making purchases.
Key Takeaways
- Lifestyle Creep Definition: Lifestyle creep refers to the phenomenon where discretionary consumption on non-essential items increases as the standard of living improves.
- Changed Perspectives: With lifestyle creep, luxury goods and discretionary spending become perceived as necessities, not choices.
- Financial Risks: The downside is evident when income decreases, such as during unemployment or retirement, leading to depleted savings as individuals continue to live beyond their means.
A Deeper Dive into Lifestyle Creep
Lifestyle creep can hinder retirement plans and debt reduction as sensible financial habits are replaced by excessive spending. It can start small—like upgrading to a pricier bottle of wine or purchasing an unnecessary electronic item—but can rapidly lead to extravagant habits. The availability of credit cards facilitates larger purchases and can contribute to lifestyle creep. Strong budgeting and willpower are essential tools to avoid it.
Examples of Lifestyle Creep:
- Spending several dollars per day on coffee
- Flying premium economy when coach suffices
- Frequent and lavish dining out
- Purchasing expensive clothing unnecessarily
- Paying for housekeeping services
- Purchasing or renting larger homes than needed
- Acquiring additional luxury vehicles or a boat
The Impact of Lifestyle Creep on Near-Retirees
Lifestyle creep becomes particularly problematic for individuals nearing retirement. Typically, in their peak earning years, these individuals have often settled longstanding expenses such as mortgages or child-related costs. Feeling wealthier due to surplus discretionary income, they might indulge in high-end cars, luxurious vacations, or new homes. To maintain the newly elevated lifestyle in retirement, substantial funds are required, which they might lack due to spending their surplus rather than saving it.
The Effect of Lifestyle Creep on Younger Savers
Young individuals starting their careers can also fall victim to lifestyle creep, quickly adjusting spending habits to include items considered luxuries before. Such behavior complicates saving for homes, retirement, or paying down educational debt. Writing down life and financial goals and using them as a compass for spending decisions is a viable proactive measure to prevent falling into the trap of lifestyle creep.
Related Terms: Budgeting, Discretionary Income, Retirement Savings, Spending Habits.
