<p><img src="https://static4.businessinsider.com/image/606601f6902281001950a9f3-1441/resizefull.jpg" border="0" alt="katie oelker" data-mce-source="Courtesy Katie Oelker"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>For years, my husband and I both worked and lived on two incomes. We didn't bother with budgeting because we always spent within our means. But when I took time off work to stay home with our two kids, things changed.</p><p>In order to live on one income, we knew we had to start taking a closer look at our finances, so we <a href="https://www.businessinsider.com/personal-finance/best-budgeting-apps" target="_blank" rel="noopener">hooked up our accounts to Mint</a>, started tracking and categorizing our spending, and <a href="https://www.businessinsider.com/how-to-budget-money" target="_blank" rel="noopener">created budgets</a> for our discretionary spending categories. This helped us realize what we could and could not afford moving forward.</p><p>As we were going through this process, we chose a baseline income to create a budget on and live comfortably within, and decided that any other income on top of the baseline would be considered extra money to save or spend. As our incomes have changed over the years, we've stuck to our baseline budget, and it's helped us ensure we never let "lifestyle creep" eat up our extra cash.</p><div><iframe src="https://smartasset.com/captivate/frame/pq0cfgs6" width="100%" height="650px" scrolling="auto" style="border: none;"></iframe></div><h2>Setting a baseline budget helps us avoid 'lifestyle creep' and save thousands</h2><p>To create the baseline, we looked at our average monthly expenses as well as our average monthly income to find an amount that allowed us to pay our bills without extravagant spending. This was the amount we knew we could live off of.</p><p>In 2019, my husband and I were able to save a significant amount of money by budgeting on our baseline and putting extra commission and bonus money into our savings account. We knew there were upgrades we could have made to our home, but we were also looking to potentially move and wanted to save as much money as we could before then. Forgoing home projects and the latest iPhones, as well as watching what we spent in other areas, made it possible to save a considerable amount.</p><h3>We were able to buy a second home and max out our Roth IRAs</h3><p>By not falling victim to lifestyle creep as our income increased, we were able to save up enough money to put in a non-contingent offer on our second home. Non-contingent means we didn't have to sell our first home in order to buy the second one. It worked out great as the home we wanted to purchase had a pool and was very popular within the first two days that it was on the market. We were able to beat out other buyers who put in an offer because of our ability to go in with a non-contingent offer.</p><p>Avoiding <a href="https://www.businessinsider.com/personal-finance/question-prevent-counteract-lifestyle-creep" target="_blank" rel="noopener">lifestyle creep</a> has also allowed us to max out our Roth IRA contributions the past few years and easily pay for unexpected costs that came up during our first year in the new home, such as tree trimming.</p><p>Our new home came with more expenses than our last, partly due to increased square footage and partly due to having a pool and all of the maintenance (and entertaining costs!) associated with it. We took a look at our income and adjusted our baseline budget to fit the cost of our new home and lifestyle. When COVID-19 hit just a few months after we moved, we knew it may impact our income, but we were already prepared to live off less if needed.</p><h2>Our approach to budgeting is helping us get closer to our early retirement goal</h2><p>Now that my business is generating more income, we're following the same baseline budget approach to avoid lifestyle creep and stay focused on our long-term financial goals.</p><p>We're <a href="https://www.businessinsider.com/personal-finance/using-barista-fire-retire-early-2021-2" target="_blank" rel="noopener">currently pursuing Barista FIRE</a> (financial independence/retire early), meaning we'd like to retire earlier than the standard retirement age but also plan to work part-time or have our own business(es) to work on. At this point any profit I create is being funneled into our retirement and brokerage accounts to supercharge our savings rate.</p><p>As we discuss our future, we know there will be larger expenses that will come up, such as purchasing a new car eventually. We are cognizant of our income, budget, and what spending needs may come up in the next few years, and feel confident that we can make these spending decisions from a place of awareness versus impulsivity driven by lifestyle creep.</p><bi-shortcode id="related-content-module" class="mceNonEditable" data-type="more-retirement-coverage" data-sheetname="More Retirement Coverage">Related Content Module: More Retirement Coverage</bi-shortcode><p><a href="https://www.businessinsider.com/personal-finance/simple-change-spending-closer-early-retirement-2021-4#comments">Join the conversation about this story »</a></p> Click here to read full news..