The Deadly Costs of Lifestyle Creep

When I was in college I used to do something I called “ramen math.” It was the time towards the end of the month when money was really tight as you waited for your next paycheck, and to make every dollar stretch you had to get creative about every expense. How long could you live on just ramen? Would anyone notice if you walked out of the dining hall on campus with food in a plastic container? The most dire was getting gas: I’d go to the gas station/restaurant I worked at, fill up my car with gas, write a check to pay for it that I knew would bounce, then pick up my paycheck for the week and race to deposit it before they could deposit my check. Ramen math was an embarrassing but necessary part of my life and I knew that someday, someday I’d put it behind me and always have enough money.

Lifestyle creep

I’ve talked before about the lightbulb that flashed on for me when it comes to money. Fresh out of college with my then girlfriend and now wife we had just moved across the country and left our old way of life behind us. I was making more money than I ever had, and while I wasn’t rich I was no longer calculating ramen math. Despite no longer having to potentially bounce a check in order to fill my car up with gasoline I still didn’t have much in savings and had built essentially zero wealth. The lightbulb conversation with my significant other convinced me I needed to change that, but I had to understand first and foremost: where was my money going if it wasn’t going into savings?

What Bill's first car looked like

I’ve never been the type of guy to spend lavishly on vanity purchases. My first car cost $800 cash between my brother and I and was a 1978 Ford Mercury Cougar. It wasn’t flashy and I kind of hated how ugly I thought it was at first but I learned to love the personality in it and looking back I kind of miss that car (I don’t miss its 20 miles per gallon fuel efficiency though!). I don’t get spending $100 on a pair of shoes, or buying the biggest TV on the block to keep up with the neighbors. Those things have never appealed to me, but as I transitioned from subsistence living as a college student to middle income living as a young professional I was still spending as much money as I earned despite knowing how to live on much less.

It turned out a lot of my money was going to lifestyle creep, even if that creep wasn’t defined by fancy new cars, hardware, and clothes. The biggest expense I paid out of pocket was eating out for lunch nearly every day with my coworkers. I was in a new place (Seattle) meeting new people and social lunches were a part of the office culture where I had started working. I could afford to eat out, and paying someone else to make lunch for you was delicious, fun, and saved time. It was a no brainer! This was, of course, a far cry from my college days when grabbing a burrito at the local Panchero’s on the way home from class was reserved only as a treat if I had managed to get through the month with more money than usual. I rarely ate outside of what I cooked (lots of rice, potatoes, and pasta which can feed an army for weeks on not very much money) or what I could grab from the on-campus dining room (which technically was eating out, but it was a form of eating out student loans covered so it was considered affordable).

My lifestyle had crept up in size moving from living contentedly on low-cost staple foods to paying exorbitant fees to eat fancy foods I paid someone else to cook for me. In order to build wealth I was going to have to recognize this monster that had snuck into my life and beat it back.

Defining lifestyle creep

So what the hell is lifestyle creep? Ask a dozen finance writers you’ll get a dozen answers but my favorite explanation goes something like this: lifestyle creep is when your need for things increases to match your ability to earn money.

There’s a simple test to determine if you’ve experienced lifestyle creep: if you’ve ever thought “Man, if I only earned a few thousand dollars more per year I’d be set; I could finally feel like I had ‘enough’ money,” only to realize that 5, 10, or 15 years ago you were saying the exact same thing only now you actually do earn that much, then you’ve experienced lifestyle creep. If $5,000 extra in income would have made your life perfect when you earned $25,000/year, and now at $35,000 you feel exactly the same way your lifestyle has crept up to maintain its consumption of your salary.

What’s so bad about lifestyle creep?

Fair question and the answer depends entirely on what your goals are in life. If “having the most things” is your goal then you’re all set. The minute you have more money spend it on things as quickly as you can. If instead you’d like to be able to stop working at some point, no longer worry about debt collectors calling every day, or stop living paycheck to paycheck then lifestyle creep is very likely one of the main culprits behind your dissatisfaction with life.

Most of us have lived with less than we have now at various points in our lives, and were able to get along just fine. In fact, studies show that once you reach about $75,000 in income more money doesn’t make you happier (and can make you less happy!). So when we allow our consumption to increase in parallel to our income we trap ourselves into an ever-growing cascade of accumulating things instead of using that growing largesse to start accumulating wealth. Wealth, the capital you’re able to save over your lifetime, is ultimately what sets you free from your 9 to 5. The more you put away the faster it grows and the more wealth you accumulate. That cascades to positive things like being able to retire earlier, growing your satisfaction and comfort in life because you’re not constantly worried about money, and allowing you to be secure in the knowledge you don’t have to worry about losing your job.

Lifestyle creep on the other hand is the gateway drug to consumer debt which is the yoke that keeps the average American destined to work for decades longer than they need. At every opportunity you should seek to squash it so you can free yourself to accumulate wealth.

Ending lifestyle creep for good

Now that we can acknowledge how insidious lifestyle creep is, how do we address putting an end to it? Here are four methods that can rid you of its terrible impact for good.

Embrace “Ramen Math”

I didn’t know it then but when I was doing my ramen math all those years ago in college I wasn’t just trying to get by: I was learning a valuable skill. Knowing the impact of a dollar and how to make the most of it is a super useful skill and unless you’re a trust-fund baby you’ve probably had the chance to learn that skill at some point in your life. One of the key byproducts of learning how to do ramen math, in fact, is the most powerful financial tool in the world.

Start with The 10 Step Plan to Your Financial Future so you can figure out where your money is and where it goes and begin putting together a budget. This lets you verify where your capital goes right now so you can end lifestyle creep at the threshold you’re currently at. Whatever happens, you can lock in your consumer expenses right now with the knowledge of what they are and prevent further lifestyle creep from happening.

Love the one you’re with

It’s not just a song. Lifestyle creep’s mortal enemy is a person who knows how to be comfortable with the life they lead. Everyone has that annoying friend on Facebook or Instagram who always seems to be traveling to exotic places and living a life of adventure that seems totally out of reach. One thing about that: it’s a lie.

Your friend might not even be rich like the one in that video from College Humor but it’s not exactly sexy to show off the monthly credit card bills that are paying for those trips and leaving them swimming in debt. That’s why you never see that side of the story on Facebook, Instagram, or your pal’s other social media accounts. So stop trying to keep up with the heavily indebted Joneses and start examining what you’re happy with in your life. When you grow to be comfortable with the life you have, you’re inoculating yourself against the evil that is lifestyle creep and empowering yourself to build wealth over the long-term.

Cut creep that has already happened

If you feel you have already experienced too much lifestyle creep you can work on paring it back. How much of your current “stuff” do you really need? Is it time to reexamine if you need all of your “things” and to re-focus on what your long-term goals are? Consider a garage sale, or at least dusting off your old Ebay account and start liquidating the things you bought yourself because you felt “you deserved it.” What you deserve is being financially secure and retiring before you’re 95.

I’m not advocating selling your house and living in a tent. After all, you’d probably have to spend money on buying a tent. I am saying this is a great time to honestly examine your possessions and ask yourself, “Does this bring me happiness or solve a genuine need I have?” If the answer is no, why do you have it? Get rid of it and use it as a reminder to stop buying things like it in the future.

A free upside to all this downsizing on past lifestyle creep? You can use the funds generated from the sale of those things you don’t find value in to fund wealth accumulation. Pay down some debt, get your Roth IRA opened, start putting money into your HSA, or stuff the funds into the best career decision you’ll ever make.

Divert new funds from lifestyle creep

Do you get a regular cost-of-living adjustment at your job? Was your bonus performance unexpectedly good this year? Did you get a windfall from your tax refund? When you’re serious about cutting lifestyle creep permanent increases in your salary and short-term windfalls aren’t seen as new TVs, or new cars, or a shopping spree, they’re seen as new sources of wealth accumulation. Got a pay raise for $3,000/year? That’s not a ski trip to Aspen; it means that instead of putting $1,000 into your Roth IRA you have $4,000 to put into it.

Avoiding lifestyle creep is a lifestyle choice. New money means new ways to build wealth because you’re already happy with where your lifestyle is at. Additional funds on top of what you currently have access to should be viewed as new ways to build your wealth, not ways to buy new consumer goods you don’t need and which won’t significantly improve your life.

If you do want to celebrate a big promotion? That’s okay; just keep it small and favor experiences over things. Taking the family out to a dinner once for $100 while putting the rest of your $3,000 raise into wealth accumulation lets you feel human in celebrating the accomplishment while still benefiting from the largesse as you accumulate more wealth with it.

It’s easy to fall into the trap that you “deserve” a certain level of existence, or that you’ve “earned” splurging on expensive consumer goods that fail to make you happier with your life. But chasing an ever increasing level of lifestyle that marches in lockstep with your salary means never preparing for a day when that salary ends, forgetting how to live at a lower level of earnings, and failing to rid yourself of your money woes. That in turn can cost you your marriage or, yes, even your life. So don’t let lifestyle creep control you; take your life back and get rid of lifestyle creep for good.