A few years into Vivian Tu's career as a trader at JP Morgan, she took a hard look at her finances. Despite making more than she did when she was first out of college, she realized she was still saving the same amount of money. "And frankly, it wasn't a lot of money," she admits. It dawned on her that she'd succumbed to the common mistake known as "lifestyle creep."
This phenomenon happens when an increase in income leads to an increase in spending, so even though we're earning more, our savings account doesn't see the benefit. "Once you start to level up in your career and make a little bit more money, suddenly you want a nicer apartment. You want a nicer car. You start going out to dinners. You're getting your nails done," Tu tells PS, explaining the term.
Of course, upgrading your lifestyle is a perfectly normal and natural reaction to earning more — it's part of the reason why we work so hard to get raises, right? But when you unintentionally start buying more just because you now have more discretionary funds available, it could keep you from reaching long-term financial goals. You could be making six figures, and still living paycheck-to-paycheck because your shopping habits have gotten so expensive.
"Lifestyle creep is spending without understanding where the money's going," says personal finance coach Judy Esber. This is a pretty familiar experience, since bigger salaries often make us feel like we don't have to pay such close attention to our budgets.
Income increases can also affect our social circles. "When you start making more, that could put you in an environment where other people also have more money, and the way they live their life looks different," Esber says. Think about it: if all of your coworkers go out to $20 lunches every day, you're probably less likely to pack that daily PB&J.
So, what can you do if you want to avoid this mistake? Here's what financial experts suggest.
Experts Featured in This Article
Vivian Tu, also known as Your Rich BFF, is a personal finance content creator and author of the book, "Rich AF."
Judy Esber is a money coach specializing in ethical investing and the founder of Hear Me Finance.
Tori Dunlap is a money expert, founder of Her First $100K, and author of "Financial Feminist."
How to Avoid the Lifestyle Creep
Be Intentional
Avoiding lifestyle creep doesn't mean that you can't spend any more money when your income increases. "It's perfectly fine to reward yourself after achieving something significant, like receiving a raise," says money expert Tori Dunlap, founder of Her First $100K. "However, it's equally important to be financially responsible and invest in experiences and products that truly matter to you."
The key is to be intentional. "My rule of thumb is to spend unapologetically on the things you truly love and that align with your values, and cut back on the stuff that doesn't really matter to you," Dunlap says.
Whenever you receive a pay increase, Esber suggests sitting down to ask yourself exactly how you want to use it. "If you have an extra $200 a month, maybe it's saying, 'I'm going to buy that gym membership that I've been wanting for a long time that's $75 a month. And I'm going to put the extra $125 into investments for my retirement,'" she says. "So you're still allowing yourself some new benefits because that's part of what the money is for — to enjoy our lives. But you're not completely letting it all go to the present moment without considering your future self."
Automatically Route Part of Your Pay Into Savings or Investments
Tu has a catchphrase she likes to tell clients: "You are your own worst enemy, so you need to be your own best friend." What that means is proactively looking out for yourself by making saving easy.
Instead of sending 100 percent of your paycheck to your checking account, she suggests W-2 employees route 10 percent to a savings or investment account, and recommends that freelancers set up automatic withdrawals into a savings account. "These automations take that thought process and that emotion out of making smart decisions for your future," she says.
Track Your Spending
Of course, the only way to know when new expenses are sneaking into your budget is to keep a close eye on what you're buying. "Using a budgeting app or a simple spreadsheet to categorize your spending can help paint a clear picture," Dunlap says. It may feel basic, but it'll help you identify when non-essentials have thrown you off course.
Interrogate Your Beliefs About Money
If you're earning more than you ever expected to, make sure self-limiting beliefs don't hold you back from your financial goal. Esber says people who grow up believing they'll never be able to save enough to have a secure retirement or buy a home can fall victim to self-sabotage: because they don't believe it's realistic, they don't take the steps they need to get there.
"I've worked with a lot of women who became high-income earners but still didn't believe that buying a house was possible because they were getting all these messages that the housing market's messed up," Esber says. By plotting out the numbers, Esber helped them see it was actually feasible, and many were able to purchase their first property within a year or two.
Translate Money Into Time
Money can sometimes feel like an abstract concept, particularly when all we have to do to spend it is touch our phone or watch to a keypad. Instead of just looking at the dollar value of things you want to buy, Tu suggests considering how much time you'll have to trade for it.
"For example, if my take-home hourly pay is $20 an hour, I want to order a $20 sandwich off of DoorDash, that's one hour of my work," Tu says, adding that this helps you better assess the value of what you're buying, while also feeling free to spend money on expenses that you can justify.
Be Patient
Remember: even if your new income doesn't allow you to pay for a fancier car and a vacation and the latest iPhone right away, that doesn't mean you'll never have those things. "One of the biggest things that has helped me is learning how to be patient," Esber says. "If I want to reach my future goals, maybe I'm not going to add every single thing I want in my budget right now, but I'm slowly going to be able to get those things if I really want them." That's what saving is for.
Don't Shy Away from Money Convos
It's still taboo in our culture to talk about how much we're making or how we're spending it. But both Esper and Tu say having more open conversations about our finances could help us all better plan our budgets. So talk about your goals, and ask other people how they reached theirs. "We have more power when we know what other people are spending," Tu says. "I think we don't talk about money enough."
Jennifer Heimlich is a writer and editor with more than 15 years of experience in fitness and wellness journalism. She previously worked as the senior fitness editor for Well+Good and the editor in chief of Dance Magazine. A UESCA-certified running coach, she's written about running and fitness for publications like Shape, GQ, Runner's World, and The Atlantic.
