Let’s learn about lifestyle creep and discover if you are a victim
Oftentimes, when our situation changes—be it professionally or personally—the next thing we think to do is spend more money on things we previously avoided altogether like getting a car, changing our wardrobe, you name it. Of course, there may be times when increasing your spending in certain areas makes sense. For instance, if a recent promotion at work means longer hours or more travel, you naturally may need to spend more money on fuel for transportation or hire someone to help take care of house chores or kids if you have some.
Spending a little extra to improve your quality of life may also make sense, as long as you can afford it, right? Even though it’s an added expense, spending more money and paying someone else to do it may make sense, so you can free up some time to spend with family, and friends, or do a hobby you enjoy.
Guess what? That’s the lifestyle creep speaking right there.
What is Lifestyle Creep?
Lifestyle creep, also known as Lifestyle inflation, happens when you allow your spending to gradually increase at the pace of your income as you desire a more luxurious lifestyle. With this, your income is growing, but your savings rate never increases substantially.
Yes, being able to enjoy a bit of free time helps promote a healthy work-life balance and can make you more productive at work but if the only thing getting the feel of your increased income is your spending ability then there is a problem because it limits your ability to build wealth.
There are two truths to face when dealing with lifestyle creep:
- Yes, you should spend.
- No, you shouldn’t spend too much or unnecessarily.
How then do we draw the line between what should be deemed necessary and unnecessary?
Although, in some cases, wants and needs are subjective. One must always look to strike a balance between what gets to benefit from the increased income and what gets dropped to prevent lifestyle creep.
How do I do this?
1. REASSESS YOUR NEEDS AND WANTS
While some purchases are necessary, it always pays to separate needs from wants. Keeping needs and wants in mind—and making realistic, honest assessments about whether a potential purchase is a need or a want—can help you make better financial decisions and avoid excessive lifestyle inflation. Also, note that prioritising your important expenses doesn’t equal living a poverty-minded lifestyle.
2. DON’T COMMIT TO ANYTHING LONG-TERM JUST YET!
Is there a cause for celebration? If yes, then by all means celebrate. However, take heed so you don’t jump into any major commitments in the process, like buying a car or leasing a new apartment, right off. Wait until the first rush of euphoria that comes with the increase in income fades, and you’ve figured out your new budget based on your needs.
3. AUTOMATE YOUR SAVINGS
I think it’s quite easy to neglect your long-term money goals when you start getting that increased pay because you suddenly have other things to splurge on which all seem like reasonable choices too. But if you don’t intentionally save small amounts of money now, you may never achieve some goals. An easy solution to this is scheduling recurring transactions into a sinking fund. You do not necessarily have to remember to make the transfer. Plus, you are less likely to skip a transfer during months when you have above-average spending. Nothing to lose, yes?
4. DO IT YOURSELF
Yes, outsourcing certain tasks to spend more time with your loved ones doesn’t sound like an over-the-top idea but it can cost more than you think. It’s true you may require certain adjustments to do it yourself but it saves money when you do, no? Some tasks are easier to accomplish than they appear and YouTube has plenty of free how-to videos so, why not?
5. TRACK YOUR SPENDING/MAKE BUDGETS WITH YPFG’S BUDGETING TEMPLATE!
Once you know where your paycheck goes each month, make a budget – with a template from us, of course – that helps you reduce your current expenses. This plan can also help you save for the “essentials,” including upcoming large purchases. And getting toward your financial goals faster.
Summarily, it’s important to note that trying to reverse the lifestyle creep you are used to will most likely seem counter-effective at first. But remember that the short-term discomfort that comes with readjusting is nothing compared to the long-term results your finances would be thankful for. A subtle change here, a denial of another impulsive buying instinct there. You’ve got this!