Lifestyle creep, also called lifestyle inflation, is when your income increases, leading to a proportional increase in living expenses and discretionary spending. It can happen when you get a pay rise, inheritance payment or another sizeable increase in funds.
While you may intend to save this extra money for a rainy day, it is easy to start spending a little more each month until it is all gone. You might go to a more expensive supermarket for your weekly food shop or treat yourself to an artisanal coffee every day before work. These small changes add up over time; before you know it, your new salary is paying for your new lifestyle.
Lifestyle creep often happens in subtle shifts that significantly impact your financial health. In this blog post, we outline the signs of lifestyle creep and how to avoid it.
Recognising the Signs of Lifestyle Creep
One of the first steps in combating lifestyle creep is identifying it. Take a hard look at your finances and see if you are spending more on non-essential items, upgrading your living standards with each pay rise and increasing your credit card debt. While seemingly harmless, these behaviours can quickly spiral and impact your financial life.
Setting Financial Goals
It is vital to have clear financial goals when spending money. This could include saving for a deposit on a first home, building an emergency fund or paying into retirement accounts. Financial goals provide a roadmap for your personal finances, helping you focus on what matters most rather than getting sidetracked by additional money that might come your way.
Creating and Sticking to a Budget
Following a set monthly budget is a powerful tool for maintaining financial discipline so you do not spend the money you don't have. It helps in distinguishing between necessary living expenses and unnecessary spending. When you receive a pay rise, resist the temptation to upgrade your lifestyle immediately. Instead, allocate this extra cash towards savings goals, investment accounts or paying off debt.
Prioritising Savings
Instead of spending your pay rise on coffee and clothes, put it straight into your savings account. This removes the temptation of lifestyle creep as the money goes straight to your savings instead of your current account.
Set specific savings goals, like building an emergency fund covering at least three to six months of expenses. That way, your new pay rise can give you some financial security and cushion against unforeseen financial shocks to your bank account.
Investing in Your Future
Consider investing in your future instead of spending additional money on transient things. This could involve increasing contributions to retirement accounts or investment accounts. These financial decisions help grow your wealth over time and instil a sense of discipline in handling money.
Maintaining a Balanced Approach to Spending
If you are not used to saving money, you may find saving your entire pay rise is counterproductive. If you dedicate too much of your income to savings, you risk going over budget each month and then completely abandoning the budget altogether.
A balanced approach entails setting aside a portion of your income for discretionary spending while ensuring it does not detract from your financial goals. This way, you can enjoy the fruits of your labour without jeopardising your financial health.
Avoiding Lifestyle Creep is an Ongoing Process
Avoiding lifestyle creep requires vigilance and a commitment to your long-term financial well-being. By being mindful of your spending habits, prioritising savings and focusing on your financial goals, you can effectively manage your finances, ensuring that each income increase strengthens, rather than undermines, your financial security. Remember, the key to fighting lifestyle creep is not just about how much more money you earn but how wisely you spend and save it.
