Avoiding Lifestyle Creep as a Millennial
Earning more money as you advance in your career is a great feeling. But managing a growing income comes with its own challenges. When you earn more, it can be tempting to spend more, too, and that means less money going into savings and investments.
When your spending increases along with your income, it's called lifestyle creep. Telltale signs of lifestyle creep include upgrading to a nicer apartment, taking more vacations, and spending more money shopping. If you don't have anything left at the end of the month to contribute to your savings or retirement accounts, then it's probably time to evaluate your spending habits. Read on for tips to take charge of your finances.
Evaluate Your Purchases
Luckily, you don't have to resort to extremes to keep lifestyle creep in check. You can start by simply improving the quality of your spending and cutting what doesn't make the grade. To do this, review your transactions over the last 90 days and ask yourself the following questions:
- Which purchases align with what's important to me? Which don't represent my values?
- How do these transactions bring me closer to (or further from) my goals?
- Are there any transactions that I regret?
Eliminate spending that doesn't align with your values and/or that makes you feel bad. You'll free up more cash to put toward savings and goals, such as student loan repayment.
Save First, Spend Later
To make sure you save the money that you're no longer spending on unwanted purchases, create a system that leverages automation. If you've already allocated the money elsewhere, you won't be tempted to spend it.
Set specific goals and break down how much money you need to save per month to reach them. Having a goal can help motivate you to set money aside. Try:
- Contributing a percentage of your paycheck to your retirement account each pay period, or increasing your percentage contribution if you already contribute to a retirement account
- Setting up an automatic transfer from your checking account to a savings or investment account each month
Build a Budget and Avoid Impulsive Spending
Setting up a budget and tracking your spending can make it easier for you to hold back from buying whatever you want. It can also help you become more mindful of how you use your money.
Still, it's sometimes hard to avoid making impulsive purchases. When you find something you really want, write it down, then walk away. Give yourself seven days (or even 30) to consider it. If you feel just as strongly about the purchase after time passes, then it might be worth it.
At the end of the day, managing lifestyle creep comes down to widening the gap between how much you spend and how much you earn. The bigger that gap, and the more you can save, the faster you'll reach your goals and grow your wealth.