Many of us use our income increases to fulfil a long-held desire we had when we were at the bottom, and it’s perfectly understandable. Our spending gradually rises as our income does; it’s a common scenario. It’s the silent foe known as lifestyle creep.
A good example of this is if you start eating out almost every night because you feel like you have enough money to do so but not enough time to cook. No one is immune to it. Even individuals with six-figure incomes can be affected, as they end up acquiring sports cars, million-dollar jewellery, and gold-plated winter gear.
Those of us who fall into this category fail to budget our money and forget about our long-term financial objectives. Thankfully, if you are caught in this trap or are becoming aware that you are, you have come to the right place. We will go over this phenomenon, how to avoid it, and how to correct it if you have already stepped in.
What is lifestyle creep?
Lifestyle creep is when a person’s spending rises along with their income, especially if their additional expenses that came along with the improvement of their standard of living are for unnecessary purchases. For example, let’s say your higher income has allowed you to pay off your loan with one of the reliable money lenders in Singapore. If you choose to spend the extra money instead of saving it, this is known as lifestyle creep.
This does not just include purchasing goods; even being able to pay for new experiences is a sign of lifestyle creep.
How do you know you’re stuck in lifestyle creep?
Lifestyle creep can start small—ordering a more expensive bottle of wine at dinner or buying a bag or electronics you don’t need. But let’s be clear about the signs if you are stuck with lifestyle creep.
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Lack of retirement savings
As mentioned above, a good example of lifestyle creep is when you spend instead of saving. Sadly, of the 1,000 Singaporeans aged 25 to 60, about 71% of respondents think they are not able to retire comfortably.
An unfortunately common case is that individuals in their peak earning years, although they are homeowners, are not guaranteed to stay away from lifestyle creep. Individuals who have the majority of their retirement savings invested in properties may face a less-than-ideal retirement than those who rent their home. It is because their property investment does not contribute to retirement income.
That means a large income should make you introspective about how you use your money instead of being lulled into bigger spending. Some of your funds should be consistently transferred to a savings account for retirement, not for purely temporary and enjoyable purposes.
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Your savings are stagnant, and your spending has increased in many (or most) areas of your life
Your savings being stagnant, even after years of raises and bonuses at work, is one of the signs of lifestyle creep. If this is the case, you shall ask yourself, “Do I really spend all of the extra money I am making each year on useful and necessary things?”
If you notice that you are spending more money to buy lavish gifts, deluxe vacations, sign up for several new subscriptions and memberships, or even worse, don’t know where your money is going, you have to start being watchful and need to prioritise saving from now on.
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You don’t feel in control of your finances
If you are always stressed and checking your dwindling bank account balance or growing credit card balances, it’s a sign that the money you spend matches or even exceeds your income despite its increase.
How do you prevent lifestyle creep?
A budget is a powerful tool against lifestyle creep, as it helps you stay on track with your spending, provided that you truly stick with it. It will help you keep an eye on your spending and stick to your savings for the long term, especially for retirement and emergencies.
But, if you realise you are not that ‘too’ organised or disciplined, we recommend you use this trick—schedule automatic transfers to your savings accounts on payday so you don’t have to spend the money.
How do you get out of the lifestyle creep?
But the question is: do I have a chance to fix it? Yes, you can. Review your spending and cut what isn’t needed. Take these questions into your head:
- Which purchases are really important to me? And which purchases do not represent my needs?
- Does making a transaction bring me closer to my life goals?
- Is this a transaction I will regret?
After answering these questions, try to create or reconsider specific goals and save a portion of the money you earn every month for them. For example, make a percentage of your salary go to your retirement account each pay period. Then gradually increase that percentage. And once again, setting up automatic transfers from your checking account to your savings or investment account every month will be a huge help.
Conclusion
It’s important to recognise that lifestyle creep is a problem that stays in the shadows. We won’t feel it until we are already deep in it. Thus, it’s important to realise how it can erode financial gains towards one’s goals. And now that you know how to overcome this lifestyle problem and maintain your financial stability, spending your money wisely and accounting for every penny will be easier.
