“Lifestyle creep” is the phrase we most often use to describe how spending can increase proportionally with income. Our natural instinct is to upgrade our standard of living whenever we can afford to, even if it comes at the expense of saving for the future. It’s easy to fall into the trap of delaying saving or investing. Maybe you’ll increase your savings rate once you get a big salary bump, after you purchase a home, or when your child starts school and you are no longer paying for daycare.
The problem with delaying saving is that humans have essentially unlimited wants. When you do have the capacity to save more for retirement, along comes another want disguised as a need to fill the void instead. Sure, you could start saving more for retirement, but your guest bathroom is quite dated and it really makes sense to do a remodel sooner rather than later. For many of us, whenever we are living below our means and earning more than we spend, our natural instinct is to spend more and make our lives better, no matter how marginally they improve.
How much more do high income earners save?
If we take a look at the data, we can see that even high income earners struggle with saving a significant portion of their income. While the top 1% of income earners put away close to 40% of their income, the next 9% of top earners are only saving around 12% of their income. The average annual wages of the top 10% of earners is $250,792, to give you an idea of what type of income they are working with.
If you are nowhere near the top 10% of earners, you might think it’s outrageous that they are only able to save around 12% of their income. But if you are in or near the top 10% of earners, it’s probably quite easy for you to imagine what they would spend their money on. The more money people earn, the more they feel like they need to feel secure. When asked how much money they would need to earn in a year to feel comfortable, Americans making under $50,000 said they would need an average of $157,000 per year. Americans making at least $100,000 said they would need to earn an average of $246,000 per year to feel comfortable.
The struggles of our high-earning peers are well documented. Many still live paycheck to paycheck, and a new survey recently found that 62% of people with salaries over $300,000 per year struggle with credit card debt.
The bad news here is that making more money won’t solve all of your financial problems, and those with high incomes can still struggle mightily with their finances. The good news is that the opposite is true: you don’t necessarily need a high income to live below your means and save for retirement. Here’s how you can avoid lifestyle creep and save for retirement, whether you make $50,000 per year or $500,000 per year.
How to avoid lifestyle creep
Some of us are natural savers and always prefer to squirrel more money away rather than indulge our wants. Believe it or not, there are consequences to not being able to stop saving and enjoying your money, but you have no problem avoiding lifestyle creep. Those who struggle with lifestyle creep find it difficult to neglect their wants (often disguised as needs) and save for the future.
If we could snap our fingers and go from natural spender to natural saver, I’m sure many of us would. Unfortunately, it isn’t always possible to change how you think about money. Our attitudes and ideas about money begin taking shape at an early age, and you can’t just overwrite your fundamental understanding of something so integral to the human experience. For those who are natural spenders and struggle with lifestyle creep, the easiest way to overcome it isn’t to change your understanding of money (although that may be possible over the long-term), but to trick yourself into living below your means.
There are several things you need to do to “trick” yourself into living on less and being better with money. The first, and most important, is to reprioritize saving for the future. If you plan to save whatever is left over at the end of every month, you probably won’t have anything left to save. The money you intend to save should be as important and non-negotiable as your rent or mortgage payment, car note, and groceries. Reorganizing your financial priorities makes saving easier because you no longer look at the amount you save as optional, but a fixed expense that must be taken care of each month.
In addition to reprioritizing saving, you should deprioritize those wants that have been clogging up your budget. Our minds can play tricks on us and make us feel like certain spending is more important than it is. We know it isn’t necessary, but we can often feel like we need the happiness we will get from spending money on certain things.
To help myself avoid unnecessary spending, I keep a list of everything that I want to spend money on. Instead of making an impulse purchase, I add it to the list. If something stays on the list for months and I still want it, I will make room in my budget to buy it. More often than not, though, the desire for whatever I wanted to purchase completely disappears over time.
In the moment, I feel strongly towards purchasing something. Rather than attempting to ignore these urges, I satiate them by keeping notes. I’m telling myself, sure, we’ll buy a $1,200 robotic vacuum cleaner some day. Let me just make a note of that so I don’t forget it. When I inevitably visit the note again to add another item, I’ll be shocked that, yes, I actually wanted to spend $1,200 on a robotic vacuum cleaner when we already had a perfectly fine one at home and erase it from the list.
Budgeting software can help you live on less than you make, too. I personally use the budgeting app YNAB, which you can read about here, and I think it’s great for those of us who would otherwise struggle with lifestyle creep. The app works so well because it pushes you to give every single dollar you earn a job. You may have a lot of money in your bank account, but that money is not just sitting around waiting to be spent. It is for your mortgage payment in two months. Or to replace your HVAC unit next year. You often feel like you are broke and don’t have any disposable income, but in reality you are choosing to prioritize what’s most important, which is getting ahead and saving for the future.
A small portion of the population is naturally great with money and finds it easy to save for the future, but for most of us, being good with money takes practice and repetition. Lifestyle creep isn’t solved by making more money. As your income increases, which it likely will over time, your wants and desires usually increase along with it. There will always be reasons and excuses not to save for the future, but if you can overcome those and live on less than you make, your future self will thank you.
