LIFESTYLE & TRAVELCOLLEGECAREER

Lifestyle Creep: What It Is and How to Avoid It

Lifestyle creep happens to many people once they start a new job, earn a raise, or come into unexpected income, but what is it? According to Business Insider, lifestyle creep — or lifestyle inflation — is overspending after your income increases. Often, lifestyle creep happens over a period of years, but if you’re about to become a college graduate, this can happen more quickly with added spending due to increased income. It can easily become a habit if you don’t take steps to educate yourself and make a plan.

The Facts

To better understand lifestyle creep and how it can be avoided it’s important to know some specific data when it comes to college students and graduates:

• The average hourly wage for part-time college students is $16.57.
• The average federal student debt upon graduation is $30,090.
• College graduates overestimate their starting salary by $30,000.
• The average salary for an entry-level college graduate is $56,000.

When you consider that data, it may be easier to understand how lifestyle creep can happen. Upon graduation, some students may be able to pause their student loan repayments or pay less by using various options including forbearance. That deferred or lessened loan repayment — along with an expectation of earning a higher salary and full-time income being deposited in your account — makes it easy to spend more after the previous restrictions of life as a college student.

The Signs

Remember that lifestyle creep happens because of earning more income, which may happen with a new job, a raise, or paying off debt and freeing up money. When income goes up, often spending does too, and money can begin leaving your account faster than it comes in. But how can you tell if lifestyle creep is affecting you? According to Business Insider there are four signs of lifestyle creep:

1. Your savings are stagnant. If the amount you save hasn’t increased along with raises or bonuses, then consider your savings stagnant. A tip I heard years ago is that saving should “hurt” just a little. This means that while you can still afford to treat yourself occasionally, saving money should make you wince because you can’t have everything all at once.
2. Your spending has increased. Spending increases generally happen in all areas with lifestyle creep. This can look like dining out more than cooking at home, purchasing more memberships or subscriptions, or finding reasons to purchase more items than you did before.
3. Budgeting stops. Many times, when spending increases with lifestyle creep, it results in no longer maintaining a budget. With the increase in income, it may feel like there is no need to budget, because you can afford your bills and the extras.
4. Your finances feel out of control. When lifestyle creep happens it can easily make your finances feel out of control, which can lead to checking accounts hitting zero quickly, savings dwindling, and credit card balances increasing.

The Solution

After working hard to graduate and reach your goals, is there a way to enjoy an income increase without the risk of lifestyle creep? In one word, budgeting. To make it simple, be sure you are allocating funds with intention and with specific categories in mind. Many experts use a 50/20/30 model of budgeting.

• 50%: This portion of your income is allocated toward fixed and variable expenses such as rent, groceries, and utilities.
• **20%: **This portion of your income is allocated toward savings, investments, and retirement.
• 30%: This portion of your income is allocated for everything else including the things you want.

If you are looking to feel the “hurt” when it comes to savings, then I would encourage you to make your budgeting 50/30/20, which swaps the savings and the “everything else” categories so you’re saving 30% of your income and spending 20% of your take-home pay on items you want.

When you work to achieve your goals and increase your income, it’s important to reward yourself in a way that might not be seen as traditional. Honor yourself — and your hard work and sacrifice — by maintaining financial wellness through budgeting and treating yourself within budget. Lifestyle creep is common, but it doesn’t have to be common to you and your finances.

Sources:

Part Time College Student Salary

College Graduates are Overestimating Starting Salaries by $30,000

Average Student Loan Debt

Lifestyle Creep