Lifestyle Creep

Lifestyle Creep

What is the creeping lifestyle?

Lifestyle shifts occur when a person’s standard of living improves as their discretionary income increases and old luxuries become new necessities. The increase in discretionary income can occur either through an increase in income or through a decrease in costs.

A feature of the lifestyle shift is a change in thinking and behavior that views spending on non-essential items as a right rather than a choice. This can be seen in the attitude of deciding to spend “you deserve it”, rather than thinking about the opportunities that savings would offer. One way to combat the shift in lifestyle is to budget and discern desires from needs when shopping.

Key points to remember

  • Lifestyle creep refers to the phenomenon where discretionary consumption increases on non-essential items as the standard of living improves.
  • With the shift in lifestyle, luxury goods and discretionary spending become seen as a right to have, not a choice – as a necessity versus a need.
  • The downside to this creep is that when income declines, for example with unemployment or retirement, people will run out of savings because they will continue to live beyond their means.

Explanation of lifestyle

Lifestyle has the potential to derail retirement plans and debt reduction, as frugality is replaced by spending. Lifestyle can start small – order a more expensive bottle of wine at dinner, or buy a bag or electronic item you don’t really need – but can quickly spread to more extravagant habits. Easily accessible credit and the use of credit cards, which allow for larger purchases, can contribute to lifestyle drift. Budgeting and willpower can be leveraged to avoid lifestyle shifts.

Here are some examples of lifestyle creep:

  • Spend several dollars a day on coffee
  • Fly in economy class rather than coach
  • Eat frequently and more expensive
  • Expensive clothes (and more when cheaper clothes will suffice)
  • Pay for cleaning
  • Buy or rent more house than necessary (or a second home)
  • A third car, a boat or replace a car sooner than necessary

Pace of life and quasi-retirees

Lifestyle shifts can be particularly problematic for people nearing retirement. Such people, five to ten years before retirement, are generally in their highest income years and have already paid off long-term recurring expenses, such as a mortgage or child-related expenses. Feeling up to their new surplus of discretionary income, they can opt for more expensive cars, more expensive vacations, a second home or a new affinity for luxury products.

Since the goal in retirement is to maintain the lifestyle that we have grown accustomed to in the years leading up to retirement, these retirees need more funds to support their more lavish lifestyles. Unfortunately, they do not have the resources to do this because they have spent their excess cash rather than keeping it to support a more comfortable retirement.

Lifestyle Creep and young savers

The shift in lifestyle can also be felt by young consumers and retirement savers, as when they land their first high-paying job. Spending patterns can quickly change to include items that were previously considered luxury items. Such behavior can make it harder to save for the purchase of a first home, to retire, or to pay off student debt quickly. People who are worried about falling into such an spending trap should consider writing down their life and money goals and using them as a guide when making spending decisions.

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