Managing Lifestyle Creep As A Small-Business Owner

I am a CPA specializing in helping busy business owners decrease the amount of time and energy they need to manage their accounting system.

After a productive tax season, I’ve found myself analyzing my lifestyle spending more than I have in a few years. I’m very aware of how lifestyle creep, also known as lifestyle inflation, can sneak up on you. However, it seems that just being aware does not help to mitigate the problem; after all, you work hard to have a better life and want to enjoy it. Thus, as I make plans for the future, I find myself analyzing my budgets and with it, lifestyle creep.

Lifestyle creep usually carries a negative connotation. You want to avoid it, but do you really? I think it’s better to control it rather than try to fight it. There has to be a balance between rewarding yourself now and in the future, otherwise you won’t be as motivated to continue to work hard. For business owners, it’s even more important to manage not just personal lifestyle creep but also business-style creep. There are many ways business owners can manage lifestyle creep personally and for their business. Let’s take a look at the top five:

1. Use a tracking system.

The first step to manage your business or personal finances — and thus lifestyle creep — is to have a way to track them. You can do this through your accounting system or budgeting system. To manage lifestyle creep, your main prerogative is to track how much money you spend versus how much you save. Personally, all my savings outside my retirement accounts are in my business. I save a percentage of all sales, so my savings grow as my business income increases.

2. Analyze your spending.

Look back over a three-to-six-month period to analyze where your money has gone and make an informed decision on how to budget it today. If you don’t have any historical numbers to analyze and have to guess how much you’re spending, it’s hard to make good budgeting decisions. I often find that my initial budgets for certain categories are either inadequate, too generous or completely off the mark. After initially setting up my budgets, I’ve personally had to adjust them multiple times before I found an amount that works.

3. Determine how much to save versus spend.

Sometimes having too much money can be just as bad as having too little. For a business owner, if your budgets are too generous, you won’t save enough or be ready for the inevitable lean times. Additionally, part of any business budget is how much the owner makes. This is a great opportunity for business owners to manage personal lifestyle creep, because you can directly control how much of your new business income goes to you personally.

4. Decrease expenses.

Decrease your budget or expenses where you find you are spending more frivolously. Depending on the type of budgeting system you use, an increase in sales can mean different increases in budgets. If all your new sales go into your operating budget, then you are likely to be more frivolous with your general business spending. You can mitigate this by allocating either a percentage of sales or a fixed amount to your operating budget.

5. Enjoy more leisure.

It may be time to start working less and enjoying more leisure. Business owners are perpetually focused on being productive with time, and taking time off can feel like procrastinating. It’s good to remember that taking time off can be a great way to disconnect from your business, which in turn lets you recharge and increases your productivity.

With the close of this year’s tax season, I’ve had more time to make plans for the future. I always consider lifestyle creep as I analyze and budget my finances. A year ago, I had fewer possibilities, and thus, my future budgets are going to look different from my former ones. For business owners, this is even harder because you don’t have just a personal budget; plus, your income has a much higher degree of variability than someone with a full-time job.

Lifestyle creep is one of the toughest aspects to manage when you have a growing business. Your budgets are usually more than sufficient, but since you can always save more, it can feel like you are never saving enough. To combat this, I have a monthly savings goal, and as long as I meet that savings goal, I allow myself to enjoy expensive wine, impromptu trips and the occasional impulse purchase.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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