What is ‘lifestyle creep’?
I admit, before a conversation with a friend at the weekend, I’d never heard of the term. I’ve always been one where I have too much month at the end of my money…perhaps this has something to do with it.
Lifestyle creep can occur when people increase their income. Whether employed or self-employed or a mixture of both (see our article on the number of people with side hustles), people may be consciously increasing the amount they earn. There’s probably good reason for this: the pandemic has made a lot of people nervous about their employment situation and they may be creating a nest egg for if the worst happens, or they may be acutely feeling the impact of price rises and higher inflation, and have no choice but to increase their income because their outgoings cannot be cut any further.
According to lifestyle experts, however, once you begin earning more, your spending habits can change without you even noticing. In the supermarket, you may subconsciously select more expensive meals or cosmetics, or choose branded items instead of the supermarket’s basic range—knowing that you can afford to do so. You may book a rare weekend away, now that there’s a little money left over once all your bills are paid. If the car or washer breaks down, it’s not the panic it used to be; rather than buying the part needed, you replace it completely. The very rare treat of a takeaway at the weekend becomes a monthly ritual, perhaps even a bi-weekly/weekly one as time passes. Your attitude to borrowing may become lax, because you know you can afford to pay any credit back…which means the purchasing of larger items/upgrades becomes more attractive.
You may meet new friends as your social life soars, underpinned by your extra income. If they’re more affluent, it may be tempting to ‘keep up with the Joneses’ and spend/buy the same things they do, or go to more expensive places because they’re the venues they frequent.
Before long, any or all of these eventualities will see your outgoings and spending increase. You could find yourself back at square one, with all your extra disposable income going on this new lifestyle—a lifestyle you never even noticed becoming the norm.
The choice then is to either go back to your previous spending, which means cutting out all those lovely treats and extras, or bring in even more income—but, with the latter, the risk is that lifestyle creep could once again move your spending up another notch.
Clawing back the creep
You could compromise, and ringfence a certain amount for takeaways, days out or short breaks, but put the rest of your disposable income into a savings account. That way, you can still feel the benefit of your overtime/side hustle but you’ll also be making an active effort to build a financial cushion.
If you had debt before your lifestyle creep, or as a result of it, concentrate on paying this off—treat this as your top priority. The cost of credit will be much more than you’ll receive on your savings; however, it’s still worth putting a little cash away someplace where it’s accessible, just in case the car does break down or you’re faced with an unforeseen but necessary purchase.
I can speak from experience about how easy lifestyle creep can occur. The conversations you have with yourself…‘we can afford it now’, ‘we’ve done so much extra work, we deserve this’ or simply ‘why not?’ can lead you to making spending decisions you never envisaged, back when money was tight. Every justification takes you one step further away from that financial freedom you’d have given your right arm for just a few months ago.
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