Extra spending here and there is fine if it aligns with your budget, but excessive spending could mean you’re experiencing lifestyle inflation.
Here is how you can start looking at your finances to determine if you’re experiencing lifestyle creep.
Track your finances
You will only be able to understand your spending behavior if you know where your money is going in the first place. Ideally, you’ll want to have a record of your spending over several months, but a few weeks will do.
To get a snapshot of your spending, use your bank records, credit card statement, and other financial records. If you already use a money-tracking or budgeting app, see if you can download spending data from the last few months.
Look at how much you owe in debt
The more debt you have, the harder it could be to pay it down, especially if you’re also spending more due to lifestyle inflation.
When looking at your bank and credit card statements, note how much you are paying toward debt. If the amount has significantly increased, it could be because you are relying on credit cards or other forms of debt to get by and are spending more than you earn.
When you are paying off significant debt, you will likely need more in savings when an emergency happens.
Detect any increases in discretionary spending
If you haven’t already, organize your spending into different categories, like housing, clothing, food, and transportation. Then, look at your spending habits month to month and see if there are any differences.
Sometimes you may see slight increases — like if your mortgage payments went up because of an increase in property taxes. However, if the amount you spend on discretionary items like dining out, excessive clothing, and entertainment has gone way up, it could be a sign you’re experiencing lifestyle inflation.
Look at the types of expenses you’re spending on
Aside from analyzing the amount you spend on discretionary items, look at what you’re specifically buying.
For instance, let’s say you need a new vehicle and just got a job promotion and pay rise. Instead of purchasing a similar model at a similar price tag, you decide to opt for a luxury model.
These changes may tell you whether you’re experiencing lifestyle creep.
Scrutinize your savings and financial goals
Examine whether you made any progress towards your financial goals. Could you stash away at least $1,000 in your emergency fund? Or go on vacation without using a credit card?
If your income has increased and you have no savings or have yet to make progress on your financial goals, these are signs that you’re experiencing lifestyle inflation.
