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When I started a new job, it came with a pay rise. It was an exciting time, filled with possibilities and new challenges. One thing that I was mindful of was not to get drawn into lifestyle creep or lifestyle inflation.
As someone who values conscious spending, I understand the temptation of treating yourself to a luxury now and again or upgrading your lifestyle It’s important to navigate these moments wisely to ensure that our financial goals stay on track, even as our incomes grow.
What is lifestyle creep?
Lifestyle creep, also known as lifestyle inflation, refers to the phenomenon where an individual’s standard of living improves as their discretionary income rises, leading to increased spending on non-essential items and luxuries.
This typically happens gradually and often goes unnoticed, resulting in higher expenses that consume most, if not all, of the additional income.
How do you identify lifestyle creep?
Identifying lifestyle creep involves recognising changes in spending habits and lifestyle choices that gradually consume increased income without improving long-term financial stability. Here are some signs and strategies to identify lifestyle creep:
Increased spending
There was a noticeable rise in spending on non-essential items, such as dining out, entertainment, and luxury goods.
As discretionary spending rises with income, people often live paycheck to paycheck, despite earning more. The increased financial pressure makes it difficult to build savings or investments.
Stagnant Saving
Despite earning more, your savings rate has not increased or has decreased.
Higher spending on non-essential items means less money is available for savings and investments. Without sufficient savings, individuals are less prepared for emergencies, retirement, or other financial goals.
Increased use of credit
Growing balances on credit cards or new loans taken out for non-essential purchases.
Lifestyle creep can lead to an increased reliance on credit cards and loans to maintain a higher standard of living. This results in higher debt levels and monthly payments, further straining finances.
Unnecessary upgrades
Frequently upgrading gadgets, vehicles, or homes without a significant need for the upgrade.
If there is a constant need to upgrade, this will result in an ongoing need to rely on credit to purchase them.
Keep up with the Jones
Spending is driven by the desire to match the lifestyle of friends, colleagues, or social media influences.
How does lifestyle creep keep people stuck?
Lifestyle creep can keep people stuck in a cycle of financial instability and hinder their ability to achieve long-term financial goals.
It can trap individuals by increasing their financial pressure
How can you overcome lifestyle creep?
By being mindful of spending habits, prioritising financial goals, and maintaining a budget, individuals can avoid the trap of lifestyle creep and work towards financial freedom and stability.
Create and stick to a budget
Create and stick to a budget that allocates income to necessary expenses, savings, and investments before discretionary spending.
Automate savings
Automatically transfer a portion of each paycheck to savings and investment accounts before it reaches your spending account.
Prioritise debt repayment
Carefully review your debts and choose a repayment method that suits you, such as the snowball method or the debt avalanche method.
Live below your means
Avoid drastically changing your lifestyle and aim to live below your means. This requires appreciating what you currently have and keeping your long-term financial goals in mind.
Invest wisely
Avoid the lure of instant gratification and refrain from investing in things you don’t fully understand. Educate yourself, and if you’re still uncertain, seek independent financial advice.
Be mindful of your spending
Practice conscious spending by regularly questioning whether each purchase is a need or a want and considering the long-term impact on financial health.
Build an emergency fund
An increase in your income is the perfect opportunity to build an emergency fund for unexpected expenses.
Avoid comparisons
Focus on personal financial goals and values rather than comparing yourself to others. Limit exposure to social media influences that promote excessive spending.
Conclusion
Lifestyle creep can have significant consequences, including eroding savings, increasing debt, and delaying financial goals.
As your standard of living rises with your income, it’s easy to fall into the trap of spending more on non-essential items, leaving you financially vulnerable.
However, acknowledging the signs of lifestyle inflation doesn’t mean you must eliminate all spending increases. Instead, it’s about striking a balance.
By being mindful of your spending habits, prioritising savings, and setting clear financial goals, you can enjoy the benefits of a higher income while securing your financial future.
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