Lifestyle Creep: Erode your savings, one increase at a time | investment


However, if they earn such a high salary for just a short period of time, their savings may not be enough to continue this lifestyle into retirement.

“This either forces them to work longer hours or to cut expenses in retirement – and either option can be tough to take,” Gandhi said.

Lifestyle creep can also add to life stress, says Shah. For example, if your lifestyle becomes dependent on a certain income, what if you want to change jobs or careers?

“I’ve seen way too many people get stuck in a job they hate because of it,” says Shah.

How to prevent lifestyle creep

There are several ways to keep the lifestyle in check, but Shah, Gandhi, and Lyons all agree that the best place to start is by creating a financial plan and budget and sticking to both.

For Shah, the first line of defense is not spending too much on housing, often the highest spending on someone. In general, she suggests clients keep housing costs below 25% of their net income. And if the amount they save goes below 20% of their net income, this could be a lifestyle creep.

Lyons suggests paying yourself a weekly allowance to be conscious of your spending regardless of how much money you make. She recommends that her customers – including those who earn more than $ 1 million a year – set up programs to automatically settle their essential expenses. And with what remains, they decide on an appropriate budget weekly instead of monthly.