Lifestyle creep is when our expenses start increasing faster than what our income can keep up with. As the term suggests, it creeps up on us, until the effects hit us one day — we are living paycheck to paycheck and/or having to borrow to survive financially.

Lifestyle Creep Flavors

Here are a few flavors of lifestyle creep:

Overspending: This is when we start switching to more expensive versions of our everyday things — things like coffee, restaurants, furniture, clothing. We convince ourselves that "expensive must be better," very often because we don't know how to truly identify quality.

Buying/doing unnecessary things: Also known as the "shiny new object syndrome," this is when we always have to own the latest gadget, latest model of car, etc. The thing we've been using until now suddenly seems old, dull and boring, even when it's in perfect working order. We remodel or accessorize our homes even when it is perfect. We decide to own a boat, or a vacation home even when we know we'd use them only a couple of times a year, and renting them is much cheaper.

Buying more things than what we need: Examples of this include owning more cars than what we would ever need; subscribing to multiple entertainment services, more than what we have time to enjoy; buying a bigger home even though the size of our family hasn't changed and won't change in the foreseeable future.

Fixing Lifestyle Creep

A lot of lifestyle creep is driven by our desire to keep up with the Joneses or outshine them. This is an energy drain that is both fruitless and never-ending — every time we equal someone in material possessions, our mind will discover someone new to compare ourselves with; there'll always be someone with a newer model of a gadget, a bigger house than ours, etc. Understanding and internalizing this helps us insulate our self worth from others' opinions and makes us focus on our core needs that make us truly contented.

In addition to addressing the psychological causes for feature creep, we can also take some practical steps. We don't need to go on a 'lifestyle freeze' diet. Using a combination of techniques, we can create a win-win strategy that allows us to enjoy our increasing affluence without affecting our current and future financial health:

The first step is to create a budget (and sticking to it!). This forces us be aware of how much we are spending. If our income increases, we consciously increase our budget, instead of mindlessly splurging. Grouping our expenses into short-, medium- and long-term is a good way to see how much we're spending versus wasting.

Next, we cultivate a 'save first' mindset. This helps us apportion our income appropriately. For example:

• Add 10% to our emergency fund.
• Invest 50%.
• Use the remaining 40% for all our expenses.

The good thing about thinking in terms of percentages is that, as our income increases, both money available to invest and for expenses increase proportionately.

We also learn to evaluate true quality and not be swayed by a product's cost. A higher priced product doesn't automatically mean a higher quality product. When we consider a product or a service, we look at its value, upfront and maintenance costs, over the lifetime of the product or service. We compare similar products and services to understand how price is affected by demand and novelty. Once we identify truly good products, we can then decide to wait for them to be available at a price that makes sense. We often do this intuitively: traveling in the off season, waiting for a stock price to drop before investing in it, buying winter clothing in the summer and vice versa are some examples.

Summary

Taking a step back and observing our spending habits and their underlying reasons helps us plug the leaks that lifestyle creep causes.