Lifestyle Creep: Avoiding the Trap of Upgrading Your Lifestyle
📺 Ever found yourself wondering if you're spending too much money? Let’s talk about "lifestyle creep."
You might not have heard of it before, but chances are you've experienced it at some point in your life. It's that gradual increase in your spending as your income goes up, which can lead to financial stress and hinder your long-term goals.
So, let's dive in and explore what lifestyle creep is, how to recognise it, and most importantly, how to deal with it.
“You shouldn’t base your spending solely on your earnings or income but rather on the lifestyle you truly want to have”
what is it?
You get a raise or a bonus, land a better-paying job, and suddenly, you find yourself splurging on fancy dinners, designer clothes, or this new gadget.
This is what we call lifestyle creep in action. It's the tendency to upgrade your lifestyle as your income increases, often without conscious intention.
Lifestyle creep can be subtle and difficult to spot. Here are a few signs to watch out for:
Inflated Expenses: Take a look at your monthly budget. Are you spending more on discretionary items than you used to? Are your fixed expenses, like housing or transportation, increasing unnecessarily? You can measure these as a percentage of your income, if you keep your costs low, this percentage should decrease over time.
Increased Debt: Are you accumulating more debt or relying more on credit cards to sustain your new spending habits? This could be an early sign of lifestyle creep.
Disregard for Savings: If your savings rate remains stagnant or even decreases despite higher income, it may also be because of lifestyle creep. A higher income should allow you for higher ability to save and invest money.
dealing with lifestyle creep
You shouldn't base your spending solely on your earnings or income but rather on the lifestyle you truly want to have. It's essential to identify what makes you happy and prioritise which blend of work-life you want in your pursuit of your dream life. This means considering what truly contributes to your happiness and ensuring you have enough financial resources to sustain it.
Set your goals
To achieve this, it's crucial to set clear and tangible financial goals: what do you want to achieve in the short and long term? Can you visualise the life you want to have in the next 10, 20 and 30 years?
When you start earning more, it's important to avoid the temptation of lifestyle inflation and spending too much money today. Instead, save and invest proportionally to your increased income. This way, you can continue building wealth and working toward your long-term goals, rather than spending on unnecessary expenses.
Additionally, take the time to reflect on what you truly value in life. Determine the areas where you want to allocate your financial resources and prioritise accordingly. By aligning your spending with your values, you can ensure that your money is being used to support what matters most to you.
Invest in Yourself and Your Future
As your income increases, it's essential to allocate a portion of it towards investing in yourself and your future. This means investing in your personal and professional development to enhance your skills, knowledge, and overall well-being.
Consider pursuing further education, attending workshops or conferences, or enrolling in courses that can expand your expertise and open up new opportunities.
Investing in yourself also includes taking care of your physical and mental well-being. Prioritize activities that promote a healthy lifestyle, such as regular exercise, quality sleep, and stress management techniques. Additionally, allocate time for activities that bring you joy and fulfillment, whether it's pursuing a hobby, spending time with loved ones, or engaging in self-care practices.
Mindful Spending and minimalism
Practice conscious spending by being intentional about how you use your money. Before buying something, ask yourself if it aligns with your values and long-term goals. Will it truly enhance your life or just provide temporary satisfaction? For example, instead of impulsively buying the latest smartphone, consider whether your current phone meets your needs and if the upgrade is worth the cost.
Budgeting
Creating and sticking to a budget is crucial. Set clear financial goals and allocate your income accordingly. Include savings and investments as non-negotiable items in your budget, and make room for occasional treats within reasonable limits. For instance, if you're saving for a down payment on a house, allocate a specific percentage of your income toward savings each month. By budgeting effectively, you can control your spending and ensure your money is working toward your long-term objectives.
Delayed Gratification
Just because you can afford something now doesn't mean you have to buy it immediately. Give yourself time to evaluate whether the purchase is essential or simply a fleeting desire. For example, if you come across something that catches your eye, wait for a designated cooling-off period, a week or two, before making the purchase. Often, you'll find that the initial desire fades, and you're left with more clarity to make a mindful decision.
Automate Savings: Secure Your Future and Build Wealth
By automating your savings, a portion of your income is saved or invested before you even have the chance to spend it impulsively. For example, you can arrange for a specific amount to be automatically transferred to a savings account, tax-efficient investment account or a retirement fund each payday.
Automating your savings ensures consistent growth without relying solely on willpower. It eliminates the temptation to spend the extra income and makes saving a seamless part of your financial routine. Over time, these accumulated savings and investments can grow significantly and provide you with a solid financial foundation for the future - thanks also to compounded growth.
Regular Financial Check-ins
Schedule regular check-ins with your finances. Review your budget, track your expenses, and assess whether you're staying on track with your goals. This practice helps you stay mindful and accountable for your financial choices. For example, set aside time every month to review your bank statements, credit card bills, and investment accounts. Analyse your spending patterns and adjust your budget as needed. By staying engaged with your finances, you'll have a clearer picture of your progress and areas that require adjustment.
Resist Social Pressure
Avoid comparing your lifestyle with others and falling into the trap of "keeping up with the Joneses." Remember, appearances can be deceiving, and true wealth lies in financial freedom and peace of mind. For instance, your friends may be wearing designer clothes and eating at fancy restaurants, but that doesn't mean you should feel compelled to do the same if you don’t want to. Focus on your own financial goals and what brings you genuine fulfillment.
Avoid the Scarcity Mindset
While it's crucial to prioritize saving and financial stability, it's equally important to strike a balance and avoid developing a scarcity mindset. Saving money is essential, but it's also important to allow yourself a designated spending pocket.
At the same time, don't overlook the significance of building assets, such as investments, alongside your savings. Investing is a powerful tool for growing your wealth over time. By putting your money to work, you can potentially generate passive income and increase your net worth. Remember that diversifying your portfolio can help mitigate risk and maximize potential returns.
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The key here is to strike a balance between enjoying the present and building a secure future. By allowing yourself to spend on things that bring you happiness and at the same time focusing on building assets through investments, you can achieve financial well-being and set yourself up for long-term success.
It's not about depriving yourself but about making intentional choices that align with your values and long-term aspirations.
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