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Is it Inflation…Or Are You Experiencing the Lifestyle Creep?

Is it Inflation…Or Are You Experiencing the Lifestyle Creep?

March 06, 2024

It’s happening to all of us. We take a deep breath when we see the increased prices at the grocery store, or we nostalgically think back to the day when airfare was cheaper, and we could take the family to the movies without taking out a second mortgage.

Inflation is real, people. But it can also mask another problem that might be wreaking havoc on your budget.

The lifestyle creep.

Lifestyle creep, also known as lifestyle inflation, is the gradual increase in spending as your income rises. It's a common phenomenon that often occurs without conscious awareness, leading individuals to upgrade their lifestyles in tandem with their income growth.

While a salary increase or financial windfall may seem like a reason to indulge in luxuries, succumbing to lifestyle creep can have detrimental effects on your long-term financial health, particularly in the face of inflation. And you might be kidding yourself when you look at your credit card bill and think, “It’s so high because prices are higher.” Sure, that might be the case. But you might also be making purchases that are sneaking up on you and your budget.

Let’s look at why inflation is no excuse for a lifestyle creep – and how you can avoid slowly getting yourself into trouble.

Inflation WILL Happen

First of all, inflation is inevitable and a fundamental aspect of any economy. While its rate may vary over time, it's almost always present. Using inflation as an excuse to inflate your lifestyle perpetually sets a dangerous precedent. Instead of adjusting your spending habits every time inflation ticks up, try to adopt a sustainable financial strategy that considers inflation as a constant factor.

Take Time to Evaluate Your Spending

Is it the price of eggs that is making a dent in your bank account…or did you subscribe to three more streaming services this year? While inflation may lead to higher prices for goods and services, it's crucial to differentiate between necessities and luxuries. Not all expenses are equally affected by inflation. This is when it’s important to be honest with yourself.

Practice Saving Dynamically

Dynamic saving, also known as flexible saving, emphasizes adaptability and responsiveness to changing circumstances. Unlike traditional saving methods that involve rigid savings targets and fixed contributions, dynamic saving acknowledges the fluid nature of income, expenses, and financial goals, allowing you to adjust your saving habits. In other words, if your income goes up, so does the automated amount you have going into your savings or retirement accounts. Instead of using 100% of your raise to buy something new and shiny, you contribute more to your future and avoid the lifestyle creep.

 

I have a feeling that almost everyone has found themselves using inflation as an excuse for the reason why ALL of their bills have gone up at some point. That’s because your bills likely have gone up! However, financial planning is about pausing every once in a while, and really looking at what’s going on in your accounts. This is a lifelong process – one that I’m happy to help you with.