How to Avoid Lifestyle Creep


It always feels good to receive a pay rise or move into a better paid position. But in order to make the most of your additional income, you need to watch out for a little thing known as ‘lifestyle creep’. That’s what can happen when you start using your new income to upgrade your basic standard of living. So, for instance, you might start stocking the cupboards with fancier ingredients – things you used to buy as a treat. If you start to see your luxury items as essential purchases or necessities, then you’re probably suffering from lifestyle creep.

Why does it matter?

While it’s nice to treat yourself, inflating your lifestyle in this way means your losing out on the real benefits of an increased income. Instead of saving more towards retirement, or a big purchase such as a first home, you’ll simply be increasing your disposable income. If you fritter away your extra money and get used to a luxurious standard of living, you’ll also find it much harder to cope should your circumstances change. It’s much harder to downgrade your lifestyle once you’ve already got used to the good life.

Start thinking of savings as a bill

One way to avoid lifestyle creep is to get serious about saving. Instead of putting away whatever’s leftover at the end of the month, set up a direct debit to go out just after you’ve been paid. As a rule of thumb, aim to save around 75% of any pay increase that you receive. By sending this money straight out of your account, you won’t find yourself tempted to spend it: out of sight, out of mind!

When it comes to prioritising your different savings funds, start with your emergency fund. Then look at essentials such as retirement savings and important larger purchases. Fun money and savings for things like holidays come last.

Be clear of your goals

Lifestyle creep is most likely when you feel as though your money is burning a hole in your pocket. Having a strong idea of your financial goals gives your money purpose. In turn, this makes you less likely to spend it on smaller luxuries. You should try to write your goals down somewhere so that you can refer back to them and keep yourself motivated.

Change your lifestyle slowly and steadily

If you’ve been surviving on a tight budget then lifestyle creep is going to be even more tempting. We’re not advocating extreme frugality: if you can use your higher income to make life a little bit more comfortable then it might be a good idea. But make these changes small and sustainable – and focus on the things that you need first. Make a core list of the essential items that will allow you to sustain yourself at a reasonable quality of life. Then create a second list of ‘treat’ items. These are the things that you should ration: aim to buy just one or two treats a month.

By avoiding lifestyle creep, you can make smart decisions about your money and, hopefully, see your income continue to grow.

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