Are your finances suffering form lifestyle creep?
Lifestyle creep, also known as lifestyle inflation, is the phenomenon whereby you increasingly spend more money on your standard of living as your income increases. Suddenly, purchases that may have once been perceived as ‘luxury’ items are treated as ‘essentials’ over time.
Looking back at your income over the past few years, do you recall ever getting a pay rise (woohoo!) and expecting to feel so much richer with the additional disposable income only to find that after a few months you’re once again living pay check to pay check? What happened?! Lifestyle creep.
Lifestyle creep can manifest in many varied forms. It can be reflected in the purchase of expensive vehicles, dining out more often, catching more ubers, expensive club memberships, high maintenance items like dry clean only clothing, or even a second home (Yes, darling, we really need a city pad for the week and a country estate for the weekend - it’s essential!).
Lifestyle creep can be hard to spot at times and many financial experts will often refer to it as the ‘silent inflation’. It happens incidentally without you realising it. You’re making more money than you’ve every made before. Why don’t you feel like you’re getting ahead?
Research shows that those in their 20s and 30s are most susceptible to lifestyle creep as it’s often a period where you experience the most significant income increases. These boosts to your pay packet can lead to excessive spending because why not? You’ve worked hard, you deserve it, treat yourself!
Is this ringing any bells? Here’s three signs that your lifestyle creep might be getting the better of you:
Despite earning more money than you’ve ever earned before you still live pay check to pay check
You struggle to save money ; and/or
You have increasingly large personal debts likes credit cards, car loans and personal loans.
Paying attention to your finances and creating health money habits are essential for combating lifestyle creep and will do wonders your financial security in the long term. The good news is, that you can start creating good money habits today.
Here’s 3 tips to help you overcome your lifestyle creep:
Make a spending plan and stick to it
I personally like to use a spending plan that separates my spending into 3 categories. The first is my “Financially Adulting Fund” which covers my essential living expenses bills, mortgage, food, self care, insurance etc. The second is “My Freedom Fund” which is money set aside for my long term goals. The third is my “Fun Money Fund” which is an allocated amount of funds that I can spend on clothes, dining out and just having fun.
When you start earning more money, increase the amount you contribute to each of these categories. So yes, you can allow yourself to spend more on ‘Fun’ and ‘Adulting’ but make sure you equally increase the amount you’re investing in your ‘Future’. If possible, increase the contribution to your future goals the most. Future you will thank you for it!Set some goals for yourself.
A goal should be something exciting! Be clear on how much money you need to achieve your goal also include the date by which you want to achieve it. Most importantly write down why this goal inspires you. Often I’ll work with clients who say, ‘I want to save $20,000 a year’. That’s nice. Why? The answer is often something more powerful like ‘I want to feel secure’. ‘I want to be able to take time of work to write and create’, ‘I want to be able to look after my elderly parents if I need to’. So alway include the ‘why’ in your goal to make it compelling. A compelling goal will stop you from spending every penny because there’s something worth saving for in the future!Plan to celebrate.
I get it, you’ve got a new job or a pay rise you want to celebrate and you totally should! Enjoy your life and celebrate your wins. Just keep the celebrations in check and avoid going overboard. My hot tips is to decide how you’re going to celebrate, how much you’re willing to spend celebrating and stop there.
I should add that the car pictured is not mine although I did enjoy driving it! When it comes to cars I follow the Barefoot Investor’s advice which states that you should buy the cheapest car your ego can afford. I’m very happy with my Holden Astra. I once shared this advice with a friend to which he responded “but I have a very expensive ego”. Lol. You do you, my friend. Personal finances are just that - personal!
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