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Have you noticed that as you earn more, you may not seem to have more in terms of growing your wealth, including your retirement account or that fund for the down payment on a house?

You might be experiencing lifestyle creep, which means that as you earn more, you spend more. It may well be human nature that, when you get a salary hike, you decide to splash out on a fancier car lease, a bigger home, or a luxurious vacation.

However, your spending may actually be outpacing your salary and even ringing up more credit card debt.

That’s lifestyle creep in action: Spending on “fun” non-essentials instead of putting that money to work for a more stable financial future. Learn more about it and how to rein it in while still enjoying the things money can buy.

What Is Lifestyle Creep?

Lifestyle creep can be a common phenomenon experienced as one progresses through their career. Lifestyle creep, sometimes known as lifestyle inflation, is the process by which discretionary expenses increase as disposable income increases.

Disposable income is income that isn’t already budgeted for necessities like housing, transportation, and food.

It could include anything from concert tickets to morning lattes to book buying sprees — basically anything that is likely to fall more into a “want” category rather than something strictly “needed.”

Lifestyle creep can put you squarely behind the 8-ball when it comes to getting out of debt, saving for retirement, or meeting other big financial goals. And it’s one reason people can’t escape the vortex of living paycheck-to-paycheck.

It might seem counterintuitive at first, but here’s a simplified example using a clothing budget. If you make $100 a month and set aside 5% for a shopping allowance, that’s $5 a month. If you earn a promotion at work and are now making $150 a month, that 5% now equates to $7.50 a month.

Lifestyle creep happens when you up your clothes budget to match the percentage, instead of putting the extra $2.50 toward savings or investments. Over time, those numbers can add up. And earning more isn’t all fun and games. It can also mean more expenses, and larger retirement goals.

What Causes Lifestyle Creep?

Graduating from the penny-pinching college life to your first full-time job is only one instance that can trigger lifestyle creep. It also can happen with any type of bump in cash flow that’s not part of your monthly budget, such as a raise, bonus, tax refund, gift, or winning a scratch-off ticket.

There are also psychological factors at play here, including the sometimes compulsive urge to keep up with the Joneses.

And before you blow it off as just envy with a lack of willpower, consider this: One examination of a lottery winner’s effect on the neighborhood found that the larger reward the lucky gambler collected, the more likely their neighbors were to incur more debt and even file for bankruptcy.

Say what?!

The social pressure to keep up with the consumption habits of family and friends, even when it’s conspicuous, can cause real and serious financial stress.

Social media can make matters even worse, with studies showing that post envy could be causing people to live beyond their means just so their feeds can reflect their acquaintances’.

But how do you resist the urge to upgrade your 2010-era sedan when your neighbor rolls up in a shiny new SUV? The answers might be simple on paper, but switching your mindset from “Should I spend this on a shopping spree or a vacation?” to “Should I put this money into savings or invest it?” can be easier said than done.

Discerning Needs Versus Wants

It’s normal to want to celebrate a new raise, but to avoid lifestyle creep, it can be important to make sure not to celebrate with something that will increase costs to the point of making the raise irrelevant.

For example, a person gets a raise that increases their income by $200 a month and then immediately trades in a fully paid-off car for a newer, fancier car (want), which results in a $300 monthly car payment.

Not only is the raise spent, but the amount of money available each month has also actually diminished. Sure, that person might have a car worthy of bragging about, but they may not be any healthier financially, even though they’re making more money.

On the other hand, for someone scraping by month to month, there might not be much of a choice but to fund some lifestyle upgrades with a raise. Lifestyle creep is not always a bad thing for someone working on being financially independent and secure.

Using the same example of the $200 monthly raise above, the recipient of the raise uses that money to buy a car needed to get to work to replace a lengthy public transportation commute each day, or perhaps invests in a professional development class to gain career advancement.

Either of those decisions might be perfectly worthwhile lifestyle changes that someone might be happy to pay for with a new raise. After all, part of financial wellness is investing in oneself when possible to achieve goals.

Tips for Avoiding Lifestyle Creep

Giving every extra penny of a cash windfall to a credit-card company doesn’t sound like much fun. But just knowing that lifestyle creep exists, and recognizing it in your own life, can put you ahead of the game when it comes to making better decisions with your money.

Here are a few possible ways you can avoid lifestyle creep while still enjoying the good things in life.

Celebrating Small

If you earn a raise, you should absolutely celebrate — especially if it’s higher than the average 2.9%. But to outsmart lifestyle creep, you may want to take a deep breath and resist the urge to run to the store for that expensive thing you’ve had your eye on. (What would Marie Kondo do?) Instead, consider a small way to congratulate yourself, like a dinner with friends.

Creating a Budget

One way to avoid lifestyle creep may be to give all income a job to do. Yep, that extra $200 a month shouldn’t just be chilling in a checking account with no purpose, like a freeloading cousin camping out on the couch.

Letting that extra money hang out in the checking account too long with nothing to do might lead to unplanned spending on a weekend trip or that budget-busting espresso maker that would be a tempting purchase. Putting that money to work might allow protection against impulse spending.

What exactly is “putting money to work”? It all comes down to budgeting. But don’t panic — gone are the days of lengthy kitchen-table sessions with bills and statements fanned out and calculations done by hand.

With the advent of online banking, most people are likely equipped with everything needed to make a budget right on your phone or computer.

Don’t have a basic budget already? Getting a raise can be a great time to crunch the numbers and be financially stable and responsible with that money. If there’s already a budget in place, a new raise is a great time to reconfigure the budget to make sure it still ticks all the financial boxes.

Avoiding Mindless Spending

Mindless or pointless spending might happen when there is unexpected extra cash sitting in the bank account. Much like the itch to spend that crisp, new $20 bill included in a childhood birthday card, there may be psychological and emotional temptation to spend money in the bank account without considering whether or not those new, modern table lamps or that brand new gaming system is really needed.

Casually buying unnecessary items could indicate compulsive or impulsive spending. This in turn could mean missing an opportunity to put money to work for the future, sustainably upgrading a lifestyle by planning ahead for financial growth.

Tracking Your Spending

When it comes to managing money, one question you don’t want to ask yourself is “Where did that money go?” Losing track of expenses could not only lead to a blown budget, but also overdraft fees, returned checks, or other unnecessary fees that could put you even further behind.

If you really struggle with this one, there’s an app for that. A large number of them, as a matter of fact. SoFi, for example, lets you see all of your accounts in one place to help you categorize and track your spending, set goals, and look for ways to streamline. It also can serve as the central hub for automatic payments to your bills, savings, and investment accounts.

Turn on the Auto-Pilot

One of the easiest ways to ensure that you’re only spending what’s in the budget is to automate as many payments and contributions as possible. After all, money you don’t have is a lot easier to not spend.

This strategy can start at work. If you get a raise, you might elect to increase your 401(k) contribution (or start one if you haven’t yet). And while it means that your take-home pay may not change, your retirement account can painlessly grow.

You also can automate bill payments and savings and investment contributions, all with the intention of getting the money out of your tempted hands ASAP.

Outlining Clear Goals

What’s your endgame? Do you want to retire early with a million dollars or more in the bank? Is owning a home a part of your plan? One key to avoiding lifestyle creep is to set long-term financial goals and keep your eye on the prize.

Two financial goals that can be beneficial to almost everyone include growing a short-term emergency fund and longer-term savings plan. But from there, the sky’s the limit and your goals are entirely up to you.

Avoiding New Debt

This might seem like a no-brainer, but you aren’t likely to get out of debt if you keep adding new debt to the pile. A recent report revealed that consumers are willing to spend up to 83% more using a credit card than they would with cash.

Ditching the credit cards is entirely possible — your parents and grandparents lived without them every day. Modern credit cards weren’t introduced in the U.S. until around 1958, which means that Boomers and their parents were raised on the philosophy that if you can’t afford it right now in full, you wait until you can.

And as the old saying goes, they turned out just fine.

Getting Your Head in the Game

Lifestyle creep likely isn’t impossible to reverse, but one could argue that the further you’ve allowed yourself to fall into the luxury lifestyle, the harder it could be to pull yourself out.

One way to get your head in the game is to make lists, starting with your needs (electricity) vs. wants (electric car.) From there, you could prioritize your “wants” and start to cut from the bottom.

Are there things in your life that just exist because they can? Consider eliminating them completely, or finding crafty ways to keep them around in more affordable ways, such as shopping consignment vs. retail or eating lunch out one day a week vs. all five.

And the jealousy that can mess with your head? All that glitters isn’t gold.

Choosing Your Friends Wisely

Peer pressure is a powerful motivator, but the perceived wealth of your friends, neighbors and acquaintances can be a far cry from the actual state of their finances.

If you seem to find yourself in situations where there’s pressure to overspend, including kids sports activities, nights out on the town, or an invite to a destination wedding, you may want to consider finding a circle of friends who share the same financial goals as you.

After all, it’s a lot easier to say “Let’s just cook at home to save money” to a friend who won’t pressure you to try the trendy new restaurant in town.

Spending a Raise

So what exactly should someone do with extra money after a raise? Paying more into a retirement account, paying off debts, or just putting some extra dollars towards a specific savings goal are some approaches to take.

A checking and savings account might be one helpful way to manage a raise and stay on top of a budget.

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Asset managers help manage their clients’ money. They typically manage an individual’s or institution’s investment portfolio, with the objective of building or maintaining wealth. Asset managers usually work to deliver investment returns that help clients achieve their financial goals while aiming to mitigate risk.

These professionals are typically fiduciaries, an industry designation which means they must put their clients’ best interests ahead of their own.

Understanding how asset management works, the pros and cons, and the costs involved, can help you decide whether this service is right for you.

What Is Asset Management: The Basics

Asset management is a financial service offered by licensed individuals or companies. The aim of asset management is to build or maintain a client’s wealth, typically through portfolio management. Although asset management is commonly available to high-net-worth individuals, some financial advisors may serve a wider population.

Asset managers choose what investments to buy, sell, or avoid. And they make recommendations based on what they think will help their client’s portfolio grow safely. Asset managers are trained to consider their investment choices in light of a client’s long-term goals or plan and manage potential investment risk factors as well as tax consequences.

In addition to trading traditional and alternative securities, such as stocks, bonds, real estate, and private equity, some asset managers may also offer services not usually available to private investors, such as first access to initial public offerings (IPOs).

They may also offer their clients other services like bundled insurance policies or estate planning, legacy planning, giving strategies, and more.

To make managing and monitoring their accounts easier, clients may consolidate all of their accounts — including checking, savings, money market, and investment accounts — into one asset management account. These accounts provide one monthly statement to help clients keep track of their financial activities and may provide other benefits such as automatic periodic investment.

Asset management accounts are relatively new: The government first allowed them less than 25 years ago. In 1999, the Gramm-Leach-Bliley Act overrode the Glass-Steagall Act of 1933, which banned firms from offering banking and securities services at the same time. The Gramm-Leach-Bliley Act permitted financial services firms to offer brokerage and banking services, and asset management accounts were born.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

What Is an Asset Manager?

“Asset manager” is a term in the financial industry that refers to professionals or companies that manage clients’ wealth. Asset managers may also be referred to as investment advisors, financial advisors, or wealth managers.

Generally speaking, what distinguishes an asset manager from, say, a stock broker or brokerage house is that they are legally Registered Investment Advisors (RIAs). An RIA differs from a broker, and potentially from some financial advisors, in that she or he is a fiduciary, and an asset management company is considered a fiduciary firm. That means they can execute investment trades on their clients’ behalf, and they are legally obligated to put their clients’ interests first.

An asset manager must take a two-pronged approach to managing their clients’ assets. They have to consider ways to grow the portfolio and continue to build the client’s wealth. At the same time, they have to manage risk in order to limit potential losses.

Obviously, this is the aim of many investors as well. But most investors aren’t trained in the technicalities of choosing investments, maintaining (or adjusting) a portfolio’s asset allocation, and analyzing how certain strategies may or may not support their goals. For this reason, working with a professional asset manager makes sense for a number of people.

Hiring an asset manager means trusting a professional to execute your financial mandate. These mandates may include instructions on your goals and priorities, what benchmarks may be used to measure success, and what types of investments should be prioritized or avoided. For example, an environmental organization might avoid stocks or funds that include petroleum companies, or an individual concerned about corporate responsibility might target funds that prioritize good corporate governance.

How Much Does an Asset Manager Cost?

Investors should pay special attention to how an asset manager gets paid, as their compensation structures can be complicated.

Before hiring an asset manager, an investor should feel comfortable asking for a copy of their fee structure. Individual Advisory Representatives (IAR), which most asset managers are, are required by the Securities and Exchange Commission (SEC) to file a Form ADV that includes information such as the manager’s investment style and assets they manage, among other things.

Here’s how asset managers may be paid.

Fee based on a percentage of assets

Many asset managers charge an annual fee based on a percentage of the value of an account. These fees may vary depending on the size of the portfolio. For example, larger portfolios may be charged lower fees than smaller portfolios. Or, some asset managers may offer tiered-fee systems that assign different costs to different asset levels. For example, managers may charge one fee for portfolios up to $250,000 and a slightly smaller fee for $250,000 to $1 million, and so on.

Commission-based fees

Asset managers may also earn commissions on other products or services they offer, such as insurance policies. Or they may do a combined fee structure. It’s a good idea to ask an asset manager if they accept commissions for any products they might sell, even if they also charge an annual fee.

Flat fees

Other asset management firms are fee-only, meaning they don’t collect commissions on specific products, and only make money from the management fees they charge their clients. A fee structure like this may make investors feel more confident that their asset manager is choosing investments and products that are appropriate for them and their goals, rather than choosing products because they carry higher commissions.


💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

The Importance of Asset Managers

Of course all investors are seeking the best ways to manage their portfolios. They hope to employ the right strategies that may help achieve their goals, build wealth, and avoid risk when possible. In some cases, individuals can accomplish these aims on their own, but in other cases it’s beneficial to have an asset manager who is trained in these skills.

An asset manager can:

•   Help identify investments that align with an investor’s financial goals

•   Build a portfolio and set up an asset allocation that suits an investor’s risk tolerance and risk capacity

•   Manage the portfolio over time, adjusting to their clients’ changing priorities

•   Be responsive to market conditions

•   Adhere to fiduciary standards and responsibilities in putting their clients’ best interests ahead of their own.

Given the multitude of uncertainties investors can face over a lifetime, it may be wise for some investors to consider working with an asset manager.

The Takeaway

Though asset managers are known by many names (including wealth advisor, financial advisor, RIA), they are typically professionals or firms that work with individuals or institutions to manage their money. An asset manager is entrusted with choosing the investments that can help their clients build wealth, while at the same time mitigating risk factors that might lead to losses.

Typically, an asset manager is an RIA — or registered investment advisor — which not only means they’ve met certain industry standards, but they are also considered a fiduciary: They are legally obliged to put their clients’ best interests above their own.

So should you work with an asset manager? Although many asset managers work with high-net-worth individuals (or larger organizations such as corporations and universities), it’s possible to get guidance and portfolio management skills at a range of asset levels. But whether you work with an asset manager or not, you can still start saving and investing to help reach your goals and build financial security.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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