Although you’ve been promoted several times with a salary increase…. somehow, you feel that you still don’t have enough money. Sounds familiar?
This can be attributed to something called lifestyle creep.
Also known as lifestyle inflation, this happens when discretionary spending increases as the standard of living improves. Discretionary spending is defined as spending on non-essential items such as recreation and entertainment, after paying necessary expenses such as mortgage and utilities.
Basically, this happens when people upgrade their lifestyles upon earning a higher income. Alternatively, it can also happen when a person experiences a decrease in expenses after settling an outstanding loan, for example.
How Does Lifestyle Creep…Well, Creep In?
One of the dangers of lifestyle creep is that it typically happens gradually, and this can happen in small ways: eating out more frequently at expensive restaurants, spending more than you usually do on premium coffee, buying more luxury goods, or even replacing your car before you really need to.
Dangers Of Lifestyle Creep
Of course, there is nothing wrong with rewarding yourself, especially after working so hard. However, it can be dangerous when a person does not have a proper budget with an adequate amount set aside for savings every month and discretionary expenses take precedence over a person’s emergency savings or retirement funds. This is certainly not a good money management habit.
It is even more precarious if a person is unable to manage his or her finances and ends up using credit cards to finance these purchases, without having sufficient means to settle the amount charged on the credit cards. This can then lead to an unpleasant cycle of debt.
Furthermore, it’s also hard to reverse the habit once you have started. For example, it can be hard to scale back on expensive coffee once you have gotten used to having them quite frequently. It is not impossible, but it can be hard. The situation can be exacerbated if there is a loss in employment or a reduction in income. When this happens, it’s no longer an option for the person to scale back on these items anymore: it is now a necessity, no matter how difficult it can be.
Uh-Oh, I Spot Signs of Lifestyle Creep: What Should I Do?
Fret not, as it is not too late for you to make some changes in your life. The first thing that you will need to do is identify your expenses for each month. Subsequently, you will need to honestly access if all those expenses are necessary. Remember, a discretionary expense is something that you can survive without.
Next, you will need to eliminate these expenses, so you can channel those funds into your saving goals instead. If you have unfortunately accumulated debts as a result of lifestyle creep, use these additional funds to begin settling your debts.
In its report titled, ‘2021: How Investors Reacted to Covid-19’, StashAway, a wealth management platform, reported that 7% of its Malaysian clients are now saving more than half of their income, as compared to only 3% in the pre-pandemic days. When push comes to shove, it looks like it is not impossible to increase savings and eliminate unnecessary spending. It was certainly helpful that shopping malls were mostly closed and restaurants only served take-aways. So, why shouldn’t this discipline continue, even after most of these lockdowns are lifted?
How Do I Avoid Getting Trapped into A Cycle of Lifestyle Creep?
If you are wondering how can you avoid getting trapped in this cycle, here are some pointers that I would like to share with you:
- Create a budget
I always think of a budget as a roadmap – very useful to keep track of expenses to ensure that the amount of expenses does not exceed the income. However, more than just having a budget, it is more important to stick to the budget that you have created. One thing to note is never create an unrealistic budget, as it makes it harder for you to stick to it.
- Prioritise savings over discretionary spending
When your paycheque comes in every month, ensure that you only spend what is left after deducting your expenses AND savings. If you think you lack the discipline to contribute your savings every month, how about automating a set amount to be transferred automatically to your various saving goals? Through this, you can still treat yourself and have peace of mind.
- Have a list of long-term goals
It is always good to have long-term goals in your mind, such as buying a property, so that when you have some additional income (for example, a bonus payment or a raise), you will be inclined to set funds aside for these long-term goals. More importantly, as your income grows, always remember to keep your expenses as low as you possibly can.
Beating Lifestyle Creep Versus Enjoying Life: Balance is Key
As mentioned previously, it is not wrong to reward yourself. However, balance is vital so that the dangers of lifestyle creep do not impact your life. Create a proper budget, set aside sufficient funds for savings, and never accumulate debt to finance your discretionary spending. Reward yourself only after you have done these things, and trust me, it will be even sweeter when you do.
Hannah Becca is a content writer under Headliner by Newswav, a programme where content creators get to tell their unique stories through articles and at the same time monetize their content within the Newswav app.
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