Make your money work for you, and your close ones

Once I started feeling prosperous, something unexpected arose — the monster of Lifestyle Creep.

I had just started working as a software engineer, and had moved to an expensive capital city. My new salary seemed incredibly generous to me, especially compared to what I had earned as a student. And very quickly, I caught myself upgrading my standard of living: nicer clothes, more meals out, better furniture, and other small luxuries.

I found myself suddenly spending money on things that I'd never have considered before. Gradually, I was adjusting to a new normal where more expensive items seemed necessary rather than luxurious. And while there's nothing wrong with enjoying the fruits of your labor, I was surprised at how quickly my spending expanded to consume my increased earnings.

What is Lifestyle Creep?

Lifestyle creep (or lifestyle inflation) happens when your standard of living improves as your discretionary income rises. In other words, you spend more when you earn more.

This isn't surprising or unusual. In fact, it's how most people behave when their income increases. The trouble is, if left unchecked, lifestyle creep can prevent you from building wealth, despite earning more than enough to do so.

Here's how lifestyle creep works:

1. Your income increases (new job, promotion, etc.)
2. Your spending increases to match your new income
3. You maintain roughly the same amount of savings as before
4. Your financial situation doesn't actually improve in the long term

This cycle can repeat with each income increase, leaving you constantly living paycheck to paycheck, just at a higher level of consumption.

Why should you care?

If you're happy with your spending and don't mind living primarily for today, perhaps lifestyle creep isn't something you need to worry about. But there are several compelling reasons to keep it in check:

1. Financial Freedom: By saving more of your income as it increases, you can build wealth faster and potentially achieve financial independence earlier.

2. Reduced Financial Stress: Living below your means creates a buffer for unexpected expenses and economic downturns.

3. More Options: Having savings gives you freedom to take career risks, travel, start a business, or retire earlier.

4. Helping Others: When you consume less personally, you have more resources to help family, friends, or charitable causes.

Strategies to Combat Lifestyle Creep

Here are some practical strategies I've used to control lifestyle creep while still enjoying a comfortable life:

1. Pay yourself first

The simplest and most effective approach is to automatically direct a portion of your income to savings and investments before you have a chance to spend it. As your income increases, increase the amount you save proportionally.

For example, when I got a raise, I immediately adjusted my automatic transfers to my investment accounts to capture 50% of the increase. This allowed me to enjoy some lifestyle improvements while ensuring my savings rate also improved.

2. Practice gratitude

Research shows that practicing gratitude increases happiness and reduces the need for material consumption. I keep a gratitude journal where I regularly note things I'm thankful for, which helps me appreciate what I already have.

3. Implement the "one-month rule"

For non-essential purchases above a certain threshold (I use €100), I wait one month before buying. This eliminates impulsive spending and ensures I only buy things I truly value. About 70% of the time, I find I no longer want the item after waiting.

4. Use conscious spending

Rather than restricting all spending, I use conscious spending - deliberately choosing to spend on things that bring me joy while cutting ruthlessly on things that don't. For me, this means spending freely on books and travel, while being frugal with clothing and home decor.

5. Define "enough"

I've taken time to define what "enough" means for me in different categories of life. What's enough house? Enough car? Enough clothes? Setting these upper boundaries prevents endless upward comparisons that fuel lifestyle inflation.

Sharing the Wealth

Perhaps the most rewarding aspect of controlling lifestyle creep is the ability to help others. When your own needs and reasonable wants are covered, you can direct surplus resources to support family members, friends, or causes you care about.

Over the past few years, I've been able to:

• Help my parents renovate their home
• Pay for my nephew's educational expenses
• Make meaningful contributions to charities focusing on education in developing countries
• Create an emergency fund for my sister who works as a freelancer

These acts of financial generosity have brought me far more satisfaction than any luxury purchase could have.

Finding Balance

The goal isn't to live like a miser or deny yourself all pleasures. The goal is to be intentional about your spending increases as your income grows, ensuring that your future self and those you care about also benefit from your success.

I've found that allocating income increases using the 50/30/20 rule works well:

• 50% to increased savings and investments
• 30% to lifestyle improvements
• 20% to helping others or charitable giving

This approach allows me to enjoy the present while building for the future and making a positive impact.

Your Money, Your Values

Ultimately, how you manage lifestyle creep should reflect your personal values and goals. What matters most is making conscious choices rather than letting consumption patterns expand automatically with income.

By being intentional about your relationship with money, you can ensure it serves your highest priorities - whether that's financial independence, family security, social impact, or a balanced combination of all three.

Remember, every spending decision is really a statement about what you value. Make sure your spending tells a story you'll be proud of in the years to come.