We all know that inflation has been one of the factors causing prices to rise on everything from groceries to clothes.
But there’s a different type of inflation that you should be aware of because it’s one you can actually control! It’s called "lifestyle inflation" (more commonly called "lifestyle creep").
Lifestyle creep is when your spending increases as your income rises, usually gradually and unintentionally. Lifestyle creep is what happens when your expenses on things like dining out, vacations or new gadgets grow as your income grows. As a result, even though your paycheck got bigger, you can’t save or invest more because you’re spending more money on your upgraded lifestyle.
The problem with lifestyle creep is that you might not even notice that it’s happening to you unless you’re paying close attention!
How do you avoid lifestyle creep? Here are a few tips!
1. When you get a raise, make a specific action plan for that additional money. You can use it to pay down debts, build up your emergency fund, save for a future planned purchase like a house, or invest it for retirement. You can even automate your plan by having the increase in your paycheck automatically deposited to a savings or investment account, or set up an automatic bill payment, instead of having that money go into your checking account! If you never see the money, you won’t accidentally spend it!
2. Be conscious of social comparisons. Sometimes you look at your friends and colleagues, and you think you should be spending similarly — and you start to do that without really thinking about it. Remember that you don’t know their full situation, and they may be spending money they should be saving, or they have access to funds you don’t know about (like an inheritance). This used to be called "Keeping up with the Joneses" and it’s a sure way to find yourself in debt.
3. Make a budget! If you get a raise or come into additional money, it’s a good time to pull out that budget spreadsheet! Review how much you’ve been spending on everything from groceries to utilities, that afternoon latte and insurance. The more aware you are of your spending, the less likely you are to overspend.
Need help with a plan to save, invest or just budget for your monthly expenses? We’re here for you! CommonWealth One has a number of certified financial counselors who are ready and willing to help you make the most of your money, so you can come closer to living the lifestyle you want, intentionally! We’re just a call or a click away.
Learn More witgh Banzai: Budgeting
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