Lifestyle Creep - What It Is & How To Prevent It

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If you’re no stranger to the world of corporate work, then you would have experienced the uplifting buzz of being told you are getting a pay rise. Initially, it’s exciting, and feels like you’ve progressed to the ‘next stage’. So how come, a few months down the line, it feels like you’ve stood still? Despite the increase in salary, you are still left with almost nothing at the end of each month, you are still living pay cheque to pay cheque… why is that?
The answer to that question is ‘lifestyle creep’.
What Is Lifestyle Creep?
Lifestyle creep occurs when a recent pay rise or increase in income leads to a consequential increase in non-essential spending. This could be money spent on many things; a more high-end food shop, an upgraded tv package, a new mobile phone contract, subscriptions… I am sure you can think of more and perhaps you yourself are guilty of allowing lifestyle creep to, well, creep in.
Why Is It Important To Avoid Lifestyle Creep?
In the short term, you’ll be happier. The new TV package that has really great movies will provide entertainment and the new food shops from M&S will hit the spot but these feelings won’t last forever…
In the meantime, you’re neglecting your emergency fund, your investment accounts, perhaps (if you have one) you could have been using this increase in disposable income to pay more off your mortgage. As I discussed in a recent blog, all about achieving early retirement, the gap between your income and what you spend is the key to progressing through the stages of wealth. It is also worth noting that for many people, an increase in income will result in them purchasing something flashy on finance. It might be a new car, the latest games console, anything you can dream of… but it can get you in trouble, so avoid it! If you do find yourself in trouble regarding debt then I strongly suggest checking out debt camel.
How Do You Avoid Lifestyle Creep?
The first thing you need to ensure you have in place, before any potential pay rise even occurs, is a budget. With a budget in place, when that rise comes in, you can take a quick glance at your budget and see that you are currently spending the maximum you allow yourself on transport and fuel; a new car on finance is out of the question. Instead, this extra money can go towards saving for a house or a holiday.
It is also important to review your financial position before you begin spending your money. Do you have any debt? Any outstanding loans, and that includes your Argos & Very cards, should be paid off. The sooner the better when it comes to debt like this as a late payment can cost you and a small issue will quickly snowball into a big one.
A final piece of advice I would give, which is more current now than ever, is to keep up with the news and ‘read the room’. You may have an extra £100 each month right now, maybe even more, but in 3 months time when the energy prices go up again will you be receiving another pay rise? It’s unlikely! Remember, you don’t have to spend every penny, put it in your emergency fund and make sure you are ready for any situation.
Perhaps as you read this you have recognised that lifestyle creep is already in full swing. Don’t panic. You need to begin cutting back unnecessary expenses and ensure you steady the ship. You can do this by trying some of the following…
With most things in personal finance, make sure you apply common sense and always think before you act (spend).
Until next time,