How to Save Money and Combat Lifestyle Creep

Over the weekend I reflected a bit on where we stand financially, and where we were several years ago before beginning our journey to live debt free. A few years ago, when we were buried under a smothering debt, there weren’t many opportunities for vacations and luxuries. We lived a very frugal existence.

Spending decisions were pretty easy back then. We spent the bare minimum for just about everything to free up as much income as possible to repay debt.

As we began paying off debt, our discretionary income increased, and while there was some pressure to spend more, we still had our eyes trained on the debt before us and it seemed easy to keep plugging away on the debt.

Eventually, we managed to whittle away all our non-mortgage debt, and were faced with the challenge of saving money. I’ve alluded to these struggles before in previous posts, and I keep coming back to this point in our financial turnaround because it seems to be such a pivotal moment in financial maturity.

When you get back to zero, you basically have three options:

  1. Spend everything you earn and stay in the same spot.
  2. Spend more than you earn and go back into debt.
  3. Spend less than you earn and begin to build savings.

Unfortunately, option 1 seems easiest at this point. After all, you’ve been paying off debt for months (or years) and it is easy to justify taking a breathe from a Spartan existence. We can just hang out here for a few months and enjoy the things we’ve been missing out on while paying off debt. That’s a slippery slope. Soon, you might find yourself spending more than you earn and falling back into debt.

To build savings, you must continue to live much the same way you did while getting out of debt. Sure, you can add in a luxury or two, but keep in mind that every new service you sign up for, every new item that must be maintained and/or insured (a newer car, for instance), reduces the amount of discretionary income you have left over to devote to savings.

Adding too many of these things is often described as lifestyle creep – which Investopedia describes as:

A situation where people’s lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.

Of course, the key to avoiding lifestyle creep is to find contentment in the things you already own. That’s tough to do in a world where the ownership of every new technology product is pitched as the difference in life or death.

Did you hear the story of the kid in China who sold a kidney to buy the new iPad 2? Seriously, you can’t make this stuff up!

The newest technological rage is Apple’s iPad 2. Like any new gadget, it will be outdated about the same time as that carton of milk in your refrigerator.

Zheng, a 17-year-old high school student in the Anhui province of China, didn’t know that. Or didn’t care. He was so bent on getting one that he sold one of his kidneys to an internet broker for 20,000 yuan (about $3,000). After the April 28 operation, he used part of the money to purchase the iPad.

Check out the rest of the story at MyTotalMoneyMakeover.com

Fortunately, most of us aren’t willing to part with a kidney to buy the latest fad, but many of us will part with a large sum of our hard-earned paycheck. And that chunk of money could be set aside for saving and investing.

So how does one motivate themselves to save money? Here are three strategies I’ve used personally to motivate myself towards saving money, instead of spending it.

#1 Set a Target

While deep in debt, my target was easy to spot: $0.00 in non-mortgage debt. Once we arrived there, the next target was largely undefined. I set a big goal of having one year’s worth of expenses in cash as a sort of super emergency fund. The bad part about setting such a large goal is takes a long time to achieve, and often you reach burn-out before you cross the finish line.

Instead, set a goal that is attainable in just a few months, like saving for a cash-only vacation, or saving enough to invest in a Roth IRA, etc.

#2 Pay Yourself First, and Last

We’ve all heard the idea of paying yourself first. Makes sense. Transfer money into savings vehicles as early in the month as possible – right off the top of your paycheck is ideal, as many of us do with 401k contributions. I also like the idea of paying myself last, sweeping any money left in our checking account at the end of the month over into a savings account so it is harder to spend.

#3 Make it Visual

Many kids’ savings products advise parents to find or print a picture of something kids are saving for and place it prominently near their savings jar (or piggy bank, whatever the case may be). I find this works well for adults, too.

If you are saving for a new car, or a pool, or a down payment on a new home, print a picture and put it on your refrigerator with the dollar goal you’d like to save. Print a miniature version for your wallet to remind you of your goal the next time you reach for your credit card inside a store.

Comments

  1. We’ve been victims (if you can describe yourself as a victim when you’ve done it to yourself) of lifestyle creep. Over the last ten years I’ve been lucky enough to have steadily rising earnings but our outgoings always managed to keep pace with the additional income. About a year ago, we decided enough was enough and started to turn down the monthly spending. Out went the Sky subscription and insurance policies that had lost their relevance. We set up a standing order in the main bank account to ‘pay ourselves first’ moving a small amount to a savings account on each pay day. So far it’s working, although with three kids, the savings do get dipped more often than we’d like!

  2. This is why I think planning your next goal before you complete your current goal is so important. My husband and I knew that after the wedding we were increasing our retirement investing, so when we had saved up enough for the wedding a month early we knew exactly what to do and did not fritter away $200.

  3. Worthy advice. Two things have save us an enormous amount of money over the last several years…all cash for all discretionary purchases (not even a debit card…cold hard cash) and the sweep savings account to clear out our books at the end of the month.

  4. Great thoughts Jason! Lifestyle creep has been something we’ve had to keep an eye on. When we were first married, I was finishing up college and he was on his first post-grad job.

    As our income increased, we’ve tried to stay on our financial goals (build savings and pay down debt). We’re down to our last non-mortgage debt with my student loan and we’re trying to stay focused.

    Well meaning family and friends encourage us to take our time with the low interest loan. However we do want to take care of that sooner rather than later.

  5. It is important to save so you do not get back into debt. Emergencies happen. Cars die etc… it is good to have money set aside to cover these expenses. The government has not been frugal and look at what has happened to our economy. The same principals that apply to people apply to governments as well.

  6. For me I guess it is just a matter of what future priority I need to focus on…there is always something out there, even once you become debt free. For parents, there could be saving for college educations, or for helping kids out later on if needed. Maybe there is a charity you want to donate to. For grandparents, it could be starting savings accounts for grandkids. Or saving up for special vacations to visit family….as the older one gets, the more time is more precious than money.

    For now, there is a roof to replace on this foreclosed house I bought, and then a new computer, as my old one fried after 8 years….

    Always, first, are the automatics to retirement savings tho – and the emergency account. And yes, having a picture on the frig, or a list on the cabinet door, sure seems to help me :) ….Like that Nook Color that has been on my “list” since last November….yep, still wanting it, and now there is a newer version…. so maybe the wait was worth it :) We’ll see…. not in the budget yet – after the roof and computer! lol!

    It takes the time to sit down and really think about what could come at you quickly from out of the future… and being prepared for it.

  7. I think the people that can avoid lifestyle “creep” are the ones that end up rich. I think about the famous celebrities that couldn’t avoid it and now they are broke. I mean, did Mike Tyson really think a white tiger was a necessity?! LOL

  8. Becoming debt free without a solid plan is where I messed up last time. Lifestyle creep and straight back into debt is what I am planning to avoid this time around. I am treating my savings like I did my debts – setting goals and then saving them down like it was a debt.

  9. I personally struggle with the balance between saving and spending now that we are debt free. Part of me thinks I should keep on saving that same amount that I was putting toward debt repayment, but another part thinks that’s way too stingy. I think you hit the nail on the head when you said you still need to make financial goals and milestones for yourself no matter what stage you are at. Otherwise it just feels like you’re working without any real purpose.

  10. Great thoughts here. The financial goals need to continue even when original goals were accomplished and you’ve found yourself above water financially. Those were just the first steps, and you don’t want to go back under or stagnate and not move forward.

    The ipad story is just insane. Remarkable lack of perspective on wants vs needs and a testament to the Apple Brand, all in one.

  11. About the credit cards – I am lucky to live in a country where credit cards are very rare (very few people have them), so I was able to make a decision of never getting one. That way I can only spend the money I get on my bank account and stay non-mortgage debt free.

  12. It is so easy to set a savings goal and then incredibly de-motivated very quickly. There is always something else that you could get and start saving “next month”. Saving and spending is a state of mind.

  13. I love the term lifestyle creep, I have been fighting it a little myself and doing well but sometimes do overstep the marl. I CAN’T allow myself to return to debt.

  14. Thank you for this post! My hubby and I are on track to become debt free in October. And to be honest, it really scares me! We are both natural spenders and I want to stay on track with being free!

  15. I’m completely out of debt (paid off the student loan a few months ago, no house/mortgage) as of January. I’ve spent the time since then topping off my emergency fund and setting aside money to replace the car when it dies (won’t be anytime soon). That will be done at the end of this month. I’m a little scared of what happens next.

    I don’t think I start spending like crazy, but I’ve already loosened the reins some. I’ve also bumped the 401k contribution to 12%. I guess I’ll bump it to 15%, and then start investing outside my 401k, but that idea is pretty scary. What if I screw up? What if I don’t bother to save enough and my goals fritter away? What if I stop having fun to save more and start having anxiety about market fluctuations? What if money management stops being fun now that the external motivations are gone?

  16. We have been in the process of paying of our morgage now for the last 4 years, we are almost there (we have enought in the bank to pay it off but we choose to keep the cash for now for any emergency). The thing is it has become so natural to save 30-40% of our income now so if we would add that money into our monthly budget again I don’t think we would know what to do with it. We don’ t need anything more, we have a nice house, beautiful kids, a good car, all the tech things we need (want) and we have had really great vacations during the last 4 years…. For us the problem will be where to invest the money as we do not have a morgage to pay off anymore??

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>