Simple, yes, but easy … ?
Lifestyle creep captures perfectly the subtle and often unconscious uptick in our expectations a) as time goes on and b) as our earnings increase.
You’ve heard us say it before, but in life there’s really only two ways to save extra money: earn more or spend less. Both do the same thing: they stretch the gap between cash in and cash out so there’s more to bank for another day.
But alas, this is money we’re talking about. We can’t let the simplicity of a theory fool us into thinking its application is easy.
It’s not. Money’s emotional and this is one alluring kinda creep …
Meet the creep
Imagine your salary takes a sudden and spectacular bump from from £2,000 to £3,000 per month. If your spending at £3k stays as it was at £2k then your cup runneth over …
But it rarely works like that. Often, our expectations, tastes and desires rise in-line with our income and the extra cash gets frittered here and there on tweaks, upgrades, dinners, holidays, gadgets and keeping up with the Joneses.
Oh go on – I can afford it now only rings true until it doesn’t.
Fact is, lifestyle creep is a major variable in whether or not people reach their financial goals, and the speed at which they do so. And FYI, most folks’ earning potential hits a ceiling in their 40s so the primary way to save is, for many, is to keep a leash on the creep.
Three actions
A huge chunk of a financial planner’s day is helping clients to manage lifestyle creep. It’s amazing what some errant spending does to a savings goal.
So here are three key practical and mindset ways to keep control and balance …
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- Spend with intention: create a budget, stick to it and review it. Things are a lot more predictable when you do.
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- Set limits: if you get a pay rise or bonus then create rules to balance fun and the future: I’ll increase my lifestyle spending budget by £50 per month and also up my pension / ISA contribution by £100 per month. Don’t deprive yourself … but don’t blow it all either.
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- The Joneses are none of my business: it’s tempting to splurge on trendy or status items but stay connected with what’s important to you. Do you want to turn heads or reach your financial goals …
Let us know how you go?