How to Avoid Lifestyle Creep and Save More Money

Lifestyle creep is one of the biggest risks to savings, and it can also make it challenging to plan and save for retirement. While lifestyle creep often happens as you progress in your career, it can also occur as you approach retirement.

The best way to keep lifestyle creep from eating into your retirement account is to nip it in the bud before it begins. In this article, we'll cover how lifestyle creep can impact your retirement plans, and provide tips for how to prevent it.

What Is Lifestyle Creep?

Lifestyle creep—or lifestyle inflation—happens when your spending slowly increases as your income rises. For example, getting a raise at work and buying a nicer car increases your monthly car payments. As your paycheck increases, you might slowly find your rent, mortgage and other costs rising as well.

While there's nothing wrong with increasing your spending to make your life more comfortable, it can become problematic when it prevents you from saving money. Do you find yourself living paycheck to paycheck despite having a steady and decent income? It might be a sign of lifestyle creep.

Not only can lifestyle inflation be stressful, as you have to keep earning a certain level of income to keep up with your current lifestyle, but it can also hinder your longer-term financial goals, like building an emergency savings account or saving for retirement.

How Lifestyle Creep Can Impact Your Retirement

Near-retirees are also at risk of lifestyle creep. Traditionally, your peak earning years are in your 40s and 50s.¹ Once you start to reach retirement, however, your earnings may decrease.¹ While most significant expenses are typically paid off by the time you retire, that may mean you have more cash to pay for other things, like a second home or vacations.

Your retirement income must be enough to sustain your current lifestyle. Avoiding lifestyle creep and making sure you're living below your means can help ensure you remain financially independent during retirement.

4 Tips to Prevent Lifestyle Creep

Lifestyle creep is often called that because it can happen without your realizing it. To prevent lifestyle creep, consider changing your thoughts about spending money. Here are four tips to prevent your finances from succumbing to lifestyle creep.

1. Create a budget

The best way to know where your money is going is to track your spending and create a budget. Making a budget is one of the best ways to prevent lifestyle creep as you prepare to retire. Create a list of your current expenses and identify areas where you might be spending too much. Then, see if you're spending too little in other areas, such as your IRA accounts.

There are many types of budgets. Find an approach that fits your lifestyle and money habits. With zero-based budgeting, for example, your income minus expenses should equal zero. In contrast, with reverse budgeting, you prioritize saving and investing over spending.

Keep in mind that creating a budget doesn't mean you have to drastically limit your spending. It's about seeing where your money goes and ensuring your spending habits fit your long-term financial goals. You can help prevent impulse spending by automating your savings into a high yield savings account.

2. Make a long-term financial plan

Before you retire, be sure to consider your long-term financial plan. Do you plan to travel a lot during retirement? Are you hoping to downsize and move to a cheaper area? Have you thought about your long-term care, such as increased medical costs?

Whatever your retirement plans, consider the financial implications. Do you know how much you need to retire? Do the math to figure out if you can afford the lifestyle you want during retirement.

3. Put any raises or extra cash into savings

If you get a raise or earn extra cash or bonuses before you retire, consider putting that money into savings or investments rather than spending it. If you want to use that money to celebrate, make sure it's on something short-term or material, such as a vacation, jewelry or a new couch.

Try to avoid making significant long-term financial commitments, such as buying a new car or taking on a new mortgage. This is especially true before you retire, as going into debt can strain your retirement finances unnecessarily.

4. Gradually add changes to your budget

Your budget can change as you get older and face major milestones like retirement. If you want to make a lifestyle change, such as buying a bigger home or traveling more, try to see if you can gradually fit it into your budget. That might mean increasing your saving for a down payment and decreasing the amount you spend dining out. Or it could mean downsizing your home and using the extra money to invest or travel.

If you need to make multiple changes, try to space them out so they aren't hitting your budget simultaneously. For example, if you need to buy a new car and are planning a dream getaway, consider not doing both during the same month.

Be Vigilant Against Lifestyle Creep

Lifestyle creep can impact anyone at any age and any income level. Even if you think you'd never spend above your means, you could find yourself spending more than you should and not having enough for your retirement savings.

Before lifestyle creep takes hold, find a budgeting technique that works for you. Plan what you want your retirement to look like, and do the math to ensure you can afford your lifestyle.

Looking for more retirement saving tips? Find out how to catch up on your retirement savings.

 

Moriah Costa is a personal finance and investing writer. Her work has appeared in Thomson Reuters, S&P Global, the Washington Business Journal and others.

 

READ MORE: The Ultimate Guide to Personal Finance

 

 

Source:

¹ Labor Force Statistics. U.S. Bureau of Labor Statistics.