How ‘Lifestyle Creep’ Can Drain Your Bank Account
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Here's your money briefing for Tuesday, January 2nd. I'm J.R. Whalen for The Wall Street Journal. It may be a new year, but old spending habits can put many people in a cash crunch. If you want to keep more money in your pocket, some financial professionals point to what they call lifestyle creep.
You couldn't tell me how much you spend on that lunch out or you couldn't tell me how much you have allocated to travel or how much you have set aside for certain expenses. That's when things have gotten maybe a little bit beyond our scope. That's when you sort of have to rein things in and understand what is this that I can control and what is this that I can't control.
WSJ personal finance reporter Julia Carpenter will join us after the break.
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If not overspending is one of your goals for 2024, how would you go about cutting back? Wall Street Journal personal finance reporter Julia Carpenter joins me. So, Julia, even with inflation a lot lower than where it was a year ago, almost everything in a household budget is more expensive.
What is 'lifestyle creep' and how is it defined?
But is inflation totally to blame?
Inflation is to blame. We're still seeing high prices on everything from gas to groceries to travel and more. But we're also seeing it come down a little bit. And that's where people should maybe take a closer look at what expenses are growing because of inflation and what expenses are growing because of lifestyle creep. Lifestyle creep is something that people can know when they see it, but they don't understand until the number is kind of right in front of them. And lifestyle creep is this phenomenon by which you're living a little bit beyond your means because your lifestyle has sort of grown beyond your budget. So the circumstance I always tell people is you start eating out lunch one day a week, and then you start eating out lunch three days a week.
And then before you know it, you're eating out lunch every single day of the week. And you've gone from getting McDonald's to getting to go sushi. And then you look at the budget and say, wait, can I actually afford to go sushi seven days a week? I could only afford that one day a week way back when. And that's when you sort of realize the toll that lifestyle creep has taken on your budget.
So this is spending on non-essentials.
Yes, non-essentials, although sometimes lifestyle creep can happen in something as big as an apartment or as housing. But most people would see it in terms of the little things that kind of come up in your budget, like what clothes you wear, how you treat yourself. But then also you could see sometimes it's going from a two-bedroom apartment and you have a roommate to going to a one-bedroom apartment, which you can totally afford, to going to a deluxe two-bedroom apartment. And you're like, wait, hold on. I don't have a roommate anymore. I can't afford two bedrooms.
So what's causing lifestyle creep to grow?
One of the things that financial advisors and other experts I spoke to said in the pandemic, we were kind of treating ourselves as a way to cope.
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