How Lifestyle Creep Impacts Your Family Budget—and How to Avoid It

Lifestyle creep can have you spending above your means, leaving less for your family's future. Here are ways to identify and avoid it, according to experts.

Photo: Getty Images. Jillian Sellers.

What is lifestyle creep? It's when your spending increases along with—but more so than—your income. This can happen after you get a raise at work, or a big annual bonus. "Lifestyle creep is a subtle and often gradual loosening of your spending boundaries," says Erin McCullen, head of consumer deposit products at Bank of America. Of course, having more money to spend isn't necessarily a bad thing—especially when you're raising a family. But lifestyle creep can slowly work its way into your family's life and wreak havoc on your budget by increasing spending while leaving less room for saving or investing.

"Over time, it will be more and more challenging to find ways to save," Annette Harris, founder of Harris Financial Coaching, tells Parents. Here are the ways you can recognize and manage lifestyle creep, so you and your family can stay on track with your finances—and still treat yourselves along the way.

1. Review and update your household budget.

The effects of lifestyle creep are not always noticeable—so it's a good idea to sit and review your family's budget and monthly expenses. Maybe you used to cook meals at home, but find that your family is ordering takeout or going to restaurants more frequently because of more money. "Not only do these actions increase the family's monthly budget, but they can also cause a portion of savings to be used to fund the increased spending limit," says Harris.

Set time aside to review your monthly expenses so you can see where your money is going and identify any areas that you can cut back. "I especially encourage couples to make time every month to look over their credit card bills and other expenses so they can identify unintentional increases in spending," Ethan Miller, CFP, tells Parents.

Miller says he often sees lifestyle creep affecting families in the form of increased food and housing costs, and more frequent and expensive travel. Seeing how your money is being spent can help you make better, more financially sustainable decisions with your money. Family finance and budgeting expert Andrea Woroch recommends using budgeting apps such as Mint for an easy way to keep track of your saving and spending. "It even categorizes your monthly spending to help put a spotlight on where you need to cut back," says Woroch.

2. Don't spend to keep up with other families.

While it can be difficult to not compare yourself to others, spending to keep up with other families can make lifestyle creep worse and make it harder to save. Social media doesn't help either. "In many cases, families spend more money because they want to keep up with what other families are doing in their social circles," says Woroch.

Scott Jensen, CFP, and manager at Country Financial says making big purchases to keep up with other families can lead to a lot of unexpected costs—for example, buying a boat just because your neighbor gets one. "We justify buying it because we know that a pay raise is likely right around the corner... Soon enough, it's easy to find yourself not only spending all of the pay raise, but also dipping into any surplus that might have existed before," says Jensen. Be wary of how another family's spending might influence your own, and really evaluate a big purchase to see if it's a fit (both financially and otherwise) for you.

3. Reflect on your family's long-term financial goals and money values.

One way to minimize lifestyle creep is to refocus on your family's long-term money goals. This can be retirement, saving for college, or paying down debt. Whatever your money goals are, discuss them as a family; this can be a great way to get kids involved in family finances, so that they know why you're sticking to a budget and what you're saving up for.

Jessica McCoy, LMFT, suggests creating a family vision board of your money goals and keeping it somewhere visible. "By naming your goals (like a dream vacation or paying for college), you will create a budget that supports not only the daily necessities, but those family financial goals," explains McCoy.

McCoy also suggests having a discussion about your family's values around money, such as financial freedom, security, or wealth. "When lifestyle creep begins to impact your budget, you can remind yourself why you are not only trying to live within your means, but to reach important family goals." Having a discussion about long-term goals and money values will help your family stay on the same page (and budget) when lifestyle creep hits.

4. Invest your raise or bonus.

Stop lifestyle creep before it starts by investing the difference in salary each time you get a raise or bonus, advises Woroch. "Set up automatic transfers to a separate savings account, or a few for different goals...This way, you aren't even tempted to start spending more," adds Woroch.

Maintaining your current standard of living can help keep lifestyle creep at bay. "If your previous income was sufficient to cover your monthly expenses, all or part of the increase could be invested or saved," says Harris.

This doesn't mean you and your family can't enjoy the money you're working so hard for. Not all lifestyle creep is bad, and if a new job or raise allows your family the financial freedom to do some things that you couldn't do before, go for it. Just make sure you're checking in on your budget, saving where you can, and investing that money toward your family's financial future, too.

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