ou’ve heard about economic inflation — it’s why gas that used to cost $1 per gallon can now be up to five times that amount. But did you know that lifestyle creep is a thing, too? It’s one reason why many Americans keep earning more money, but still struggle with the same debt load.
Here’s how it works: During your college years, you could make a ten-dollar bill last a week. You were flat broke and crafty with your money. But then you graduated to a full-time job with a full-time salary. And all of a sudden, that $10 went from feeding you for a week to buying one fancy coffee.
Because you were earning more, you had the idea that you could afford more — especially as you watched your friends upgrade to nicer cars, clothes and homes. And each time you earned a raise, or a promotion, or enjoyed some other income, it equaled more purchases, and maybe more debt.
That’s lifestyle creep — upping your lifestyle to match your income. It can be tempting to see those extra digits as “fun money” that doesn’t need to be budgeted, but putting that money to work could potentially set you up for a more stable financial future.
So what’s wrong with using a raise to fund an artisanal coffee habit or upgrading to a luxury apartment? Letting lifestyle creep eat up that raise could set back important future milestones, like paying for a wedding, buying a house, or funding retirement.
What do you think your retirement account would look like right now if you had maintained at least some of that frugal creativity that got you through the lean years?