What is 'Lifestyle Creep '

Lifestyle creep occurs when an individual's standard of living improves as their discretionary income rises and former luxuries become new necessities. The rise in discretionary income can happed either through an increase in income or decrease in costs. A hallmark of lifestyle creep is a change in thinking and behavior that sees spending on nonessential items as a right rather than a choice. This can be seen in the spending decision attitude of "you deserve it," rather than thinking of the opportunities that saving money would provide. A way to fight lifestyle creep is by budgeting and discerning wants from needs when making purchases.

Breaking Down 'Lifestyle Creep '

Lifestyle has the potential to derail retirement plans and debt reduction as frugality is replaced by spendthriftness. Lifestyle creep can start small — ordering a more expensive bottle of wine at dinner, or buying a bag or electronic item you do not really need — but can quickly extend to more extravagant habits. Easily accessible credit and the use of credit cards, which enable bigger purchases, may contribute to lifestyle creep. Budgeting and willpower can be leveraged to avoid lifestyle creep.

Some examples of lifestyle creep include:

  • Spending several dollars per day on coffee
  • Flying premium economy rather than coach
  • Eating out frequently and more expensively
  • Expensive clothing (and more of it when less expensive clothing will suffice)
  • Paying for housekeeping
  • Buying or renting more house than you need (or a second home)
  • A third car, a boat, or replacing a car sooner than you need to

Lifestyle Creep and Near-Retirees

Lifestyle creep can be particularly problematic to individuals approaching retirement. Such individuals, at five to 10 years before retirement, are typically in their peak earning years and have already paid off their longstanding recurring expenses, such as a mortgage or child-related costs. Feeling flush with their newfound surplus of discretionary income, they may opt for more expensive cars, pricier vacations, a second home or a newfound affinity for luxury goods. Since the goal in retirement is to maintain the lifestyle one has become accustomed to in the years preceding retirement, these retirees require more funds to support their more lavish lifestyles. Unfortunately, they lack the resources to do this because they have spent their surplus cash flow rather than saved it to bolster a more comfortable retirement.

Lifestyle Creep and Younger Savers

Lifestyle creep can also be felt by younger consumers and retirement savers, such as when they land their first well-paying job. Spending habits can quickly change to include items that were previously considered luxuries. Such behavior can make it harder to save for buying a first home, retirement or quickly pay down educational debt. Individuals who fear falling into such a spending trap should consider writing down their life and money goals and using them as a guide to spending decisions.

RELATED TERMS
  1. Lifestyle Fund

    A lifestyle fund is an investment fund that manages a diversified ...
  2. Discretionary Income

    The amount of an individual's income that is left for spending, ...
  3. Voluntary Simplicity

    A lifestyle that minimizes consumption and the pursuit of wealth ...
  4. Spending Phase

    The period in a person's life following retirement in which earning ...
  5. Luxury Item

    A luxury item is not necessary for living, but is deemed as highly ...
  6. Consumer Discretionary

    Consumer discretionary is an economic sector that comprises items ...
Related Articles
  1. Retirement

    How to Change Your Lifestyle to Retire Early

    You will likely have to change your lifestyle to retire early, but it's definitely doable.
  2. Retirement

    Will Your Savings Support Your Retirement Lifestyle?

    Protect your retirement savings by planning for lifestyle inflation and longevity risk.
  3. Financial Advisor

    What Retirement Will Look Like Without Savings

    Everyone knows they should save for retirement but many don't do it at all. But retirement without savings isn't pretty.
  4. Personal Finance

    5 Ways to Stop Living Paycheck to Paycheck

    It doesn't matter how much money you make, take these steps to avoid living paycheck to paycheck.
  5. Retirement

    Are You Ready for Retirement?

    Managing your wealth and taxes in retirement can help make your nest egg last.
  6. Retirement

    4 Factors That Determine Your Financial Success

    Considering these four factors as you create your financial plan can help you reach your desired retirement date and income.
  7. Retirement

    Retirement Today: An Evolution of Work and Leisure

    Retirement planning is very different for Baby Boomers when compared to their elders.
  8. Financial Advisor

    3 Financial Planning Questions for 30-Somethings

    For individuals approaching 30 and beyond, this three-question litmus test can help you see where your finances stand and areas in need of improvement.
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center