3 Things High Earners Do Differently When Lifestyle Creep Starts Winning
Having more money doesn't necessarily mean you'll escape the money problems plaguing you right now. In some cases it just means the same problems persist at bigger scales. While saving can sometimes be challenging due to the overall economy, there are scenarios where lifestyle inflation becomes an issue, and even high earners struggle to set aside any funds for the future.
In fact, according to data from the Bureau of Economic Analysis, the personal savings rate for Americans, which is the share of income they have left over after taxes and expenses, reached 2.6% in April. What’s surprising is that this figure is down 5.8% on an annual basis and the lowest rate since June 2022. But here's what successful people do to grow their wealth in spite of these trends.
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Warning Signs That Lifestyle Creep Is Settling In
There are two major warning signs that lifestyle creep is settling in.
Savings Aren’t Increasing With Higher Income
“One of the biggest warning signs is when your income keeps increasing, but your savings rate stays the same or gets worse,” said Hillary Seiler, a personal finance expert, money coach and the founder of Financial Footwork.
She said that this is very common among people who experience a significant increase in income over a short period. In her nine years of coaching NFL players on finances, she’s seen lifestyle creep show up quickly, as upgraded lifestyles turn into monthly obligations rather than intentional choices.
“Lifestyle creep rarely shows up as reckless spending,” said Mark Clark, a CFP and president of Prestige Advisors. He said that over time, gradual upgrades expand to consume the increase in earnings.
The experts agreed that high earners rarely lose control because of a single massive purchase, but rather because of the accumulation of additional fixed costs (bigger homes, luxury vehicles, expensive friend groups and the acceptance of every possible convenience).
Higher Income Doesn’t Lead To Less Financial Pressure
Clark said that when someone feels financial pressures despite earning substantially more, it’s a warning sign that lifestyle creep is starting to win. A higher income should bring flexibility and financial comfort. If the pressures remain high, this person is overspending, and lifestyle inflation is taking hold.
What High-Income Earners Do When Lifestyle Inflation Starts Taking Over
Here’s what high-income earners do differently when lifestyle creep starts taking over their budgets and spending habits.
They Automate Investing
Seiler shared that the most financially stable high earners will automate their investments at the start, following the traditional advice of “pay yourself first.”
“They build their lifestyle around what’s left, not the other way around,” she said.
High earners who can control lifestyle inflation focus on investing first, because they realize that cash-flow flexibility is important and they shouldn’t have their funds tied up. In her experience, those without a financial plan in place can fall victim to poor spending habits that make it impossible to plan for the future. When you’re unable to save, you’re constantly just getting by, and it’s difficult to save up or gain control of your financial future.
They Don’t Treat a Raise as Permission To Spend More
“The highest-performing clients I work with treat their income increases as an opportunity to build assets, reduce stress and buy back freedom,” Seiler said.
These high earners don’t treat a raise as permission to increase their spending. They treat an increase in income as a means to reach the next level.
They Consider Long-Term Consequences of Lifestyle Upgrades
Disciplined high earners will evaluate major lifestyle upgrades as long-term financial obligations, per Clark. They understand that these aren’t just one-time purchases and that a new vehicle or bigger home will come with additional expenses that can make it difficult to save. While it can be tempting to make lifestyle upgrades as soon as income increases, these modifications can come with a hefty price tag that hurts future savings.
The experts agreed that a high income doesn’t automatically translate to wealth. You can earn millions and still end up living paycheck to paycheck because your lifestyle expands too quickly. This is why you want to ensure you’re taking proactive measures, so your increased income supports your long-term financial goals and lifestyle creep doesn’t win.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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