WTF is Lifestyle Creep?

There's a financial phenomenon that is especially common with millennials. It could even be you. It goes like this:

You get your first job out of college. It probably pays peanuts because your resume is looking young and thin (which would be ideal if your resume was meeting with the stereotypical Hollywood casting director, but in reality, not so great because your resume is… a resume). I digress. The point is: you’re probably not offered a lot of dough in your first job, but you take the gig just to get your foot in the door.

While working this job, you may be living paycheck to paycheck and not saving a dime, and that’s okay. I know, you’re probably shocked hearing that from me, the president of the Emergency Fund fan club, but sometimes the reality is that you don’t have enough disposable income to make any real dent in a savings account. But you’re hopeful that if you work hard, you’ll get a raise.

And guess what? You do. You work your ass off, and you start to climb the ladder. After a year, you get a three percent raise. Then another year goes by and you get another promotion, and on and on. Fast forward five years: you’re a few rungs higher up the ladder and you’re looking back at your former self feeling pretty damn good. You may even be making a couple thousand more than you were when you were just starting out. But your savings account? It hasn’t quite climbed the ladder with you. It’s still stuck at the same number it was at when you got your very first big-kid job.

But wait… what? Why? You’re making more money, so you should have more money, right?

Well, not quite. Just because you’re making more money, doesn’t mean you’re saving more money. If you’re making more money, it could also mean that you’re spending more money.

There’s a name for this trend: it’s called lifestyle creep - the phenomenon where your income is charting upwards, but your net worth is flatlining.

I’ve seen people go from making $60,000 to making $600,000 and yet not get any richer. Why? Because their spending increases with their salary.

When these folks were making $60,000, getting a babysitter so they could do date night, felt like a luxury. But when they jumped to making six figures, they felt like what had previously been “extras” in their spending plan, could become “essentials.” Then, all of a sudden, they’re going from booking a babysitter once a month, to scheduling interviews for a full time, live-in nanny.

The creep is real and can push your goals deep into your horizon, or even worse, eat into your emergency fund if you keep living above your means.

The best way to avoid lifestyle creep is to keep your spending plan the same, even when you have more money to play with. Of course, you should give yourself some small indulgences, but for the sake of your goals, it’s wiser to keep your standard of living consistent so that your long-term wealth keeps growing — not just your short-term spending. Remember: financial freedom is not about how much you make, it’s about how much you keep.

xo,