Are you currently suffering from lifestyle creep? Do you feel as if you are earning more money than you used to but you’d never know it from looking at your bank account. If so, you might be suffering from lifestyle creep. Keep on reading to find out what lifestyle creep is and how you can avoid it.
What is lifestyle creep?
Are you currently suffering from lifestyle creep? Do you feel as if you are earning more money than you used to but you’d never know it from looking at your bank account. If so, you might be suffering from lifestyle creep. Keep on reading to find out what lifestyle creep is and how you can avoid it.
Why is lifestyle creep dangerous?
Lifestyle creep happens slowly over an extended period of time, which makes it hard to notice. What used to be a luxury becomes a necessity and as a result you’ve raised your everyday living costs. Once you become accustomed to a new way of life it can be hard to go back to your old way of life.
Now there is nothing wrong with upgraded parts of your life as you earn more money. It could be that you started off on a low salary and you’ve been actively working to increase your earnings so you could life this lifestyle. However, if your monthly expenditure has increased and that has become your new normal you need to be aware of how that impacts the amount of money you need in your emergency fund and the amount you need to be aiming to grow your pension pot to.
HOW YOU CAN AVOID LIFESTYLE CREEP
1. Analyse your current spending
Spotting lifestyle creep can be difficult. However, if there is any chance of you spotting it then you need to be analysing your spending. Track your spending for a whole month and at the end of the month review where your money has been going. Categorising your spending can be very helpful. It is easy for little amounts to build up and you might see that the small “upgrade” you made is adding up quite considerably.
For each category look at how much you have spent and also what proportion of your income that accounts for. Ask yourself whether that feels right and you are comfortable with how much you are spending when you see the figures in black and white.
2. Create a budget
Analysing your current spending will help you to get an accurate understanding of your spending at the moment. A great way to avoid lifestyle creep in the future is by creating a budget now. A very common budgeting method is the 50/30/20 rule. The idea is that your money should be spent as follows:
- 50% for needs (essential living expenses such as mortgage or rent, bills, food)
- 30% for wants (discretionary spending such as for holidays, going out for dinner / drinks, non-essential clothing, electrical gadgets etc)
- 20% for paying off debt, saving or investing
Now some people find it difficult when it comes to defining a need versus a want. You might feel as if you need a week abroad every year because you work so hard. However, it isn’t a life or death situation. If you had no money, you would forgo the holiday therefore it is a want.
Look back over your spending and see what your current needs, wants and saving ratio. If you are unable to save 20% then this may be a sign that you are suffering from lifestyle creep. Look back over your numbers and see if there is a way that you can ensure that you are able to save 20% per month. This may mean having to make some drastic choices to reduce spending in other areas.
3. Increase the amount you save or invest as your earnings increase (and automate it)
Lifestyle creep can happen at any time in your life, but If there is one moment in time where lifestyle creep is most likely to happen it is when you have a payrise. I get it! You’ve worked hard and the company finally notices and give you a 10% pay increase. You are so excited that you treat yourself and go on a shopping spree. You decide that this also means you decide that all of your work clothes will only be from certain shops and from now you’ll always get your nails done at the salon rather than at home.
Now I don’t want to rain on your parade. If you have got a payrise you should absolutely get to celebrate and feel the benefits. However, you shouldn’t be spending all of your payrise. Every time you get a payrise you should also be increasing the amount you are saving or investing.
A good rule of thumb is to use half of your payrise to spend at your discretion and use half of your payrise to save / invest for your future. This rule should also be applied to bonuses etc.
This means that you still get the feeling of having more money and being able to enjoy what that money brings, but you are also ensuring that your discretionary spending isn’t growing faster than your savings are.
To make your life even easier once you get a payrise you should re-calculate the amount you are going to save/invest each month and then automate the transaction so as soon as you are paid that money is moved to your savings/investment account.
4. Treat yourself with one-offs rather than a lifestyle upgrade
Now I totally understand that for many the point of earning more money is to enjoy it. However, the way you spend your increase discretional income can increase the amount of lifestyle creep you experience.
Deciding to treat yourself to a one-off spa experience is very different to deciding you need to get a massage every fortnight forever more.
When you use your additional income to fund one-off purchases you get the joy of feeling as if you are getting to feel the benefits of having more money, but you aren’t necessarily changing your ongoing lifestyle.
That’s it! You now know what lifestyle creep is and how to avoid it.
It is natural as your income increases to want to make changes with how you spend your money. The key is to look at the numbers and ensure that your spending doesn’t leave you with no money at the end of the month, or have a negative impact on your saving / investing goals.
In the comments let me know what your biggest take away was.
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