When former luxuries become current necessities, could you be falling victim to lifestyle creep? Unclutter your financial life today!

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When income increases, the little steps towards spending more becomes a slippery slope. Suddenly, you deserve better. Work hard, play hard is what you might be saying to yourself. Why treat yourself to chicken chop in a hawker center once a month when you could have good steak in a restaurant once a month? Why fly Economy class on a budget airline when you can fly Business class on a more luxurious airline? Next thing you know, you have a gym membership you hardly use, dine-out 5 days a week, and you can’t imagine life without air-conditioning, leading to you asking yourself “How did I ever once live on RM2k a month?”.

Say hello to lifestyle creep! Lifestyle creep is when consumption of non-essentials gradually increases as one’s income increase, along with improving one’s standard of living. While it is not wrong to want to move up in the world, needs can get confused with wants, and spending easily get out of hand.

Here are some points to ponder when it comes to managing lifestyle creep in your life.

#1. Know Your Financial Goals to Make Smarter Choices

We all deserve good things. However, if knowing that splurging now will affect your future goals (the great power of compounding!), would you still do it? But first, do you even have those goals written down?

Good financial goals are goals that are SMART and resonate with you – they are goals that you truly desire to achieve. Good financial goals will motivate you to buckle down and discipline yourself. Good financial goals will be your guides as you navigate the ebb and flow of life. To achieve your goals, you need to have a financial plan that is holistic (considers different aspects of your life and lifestyle), actionable, and sustainable. If you are having difficulty in working out your financial plan, engage a licensed financial planner and work out the details.

A good budget (part of your financial planning to achieve your goals) will allow you some leeway to treat yourself occasionally. However, when lifestyle creep sets in, the increase in spending should trigger warning bells.

Is spending more than you planned worthwhile knowing that it will impact your achieving your financial goals? What if buying a foreign-make car today instead of a local-make car means you have to retire at age 65 instead of 55? If the answer is “No, I rather achieve my goals instead of have fun now”, then you can easily choose to spend wiser. If the answer is “Yes, I’ve thought it through and it is worth it” then go ahead but do re-work your financial plan to account for the changes.

Nobody is going to stop you in making choices, regardless if good or bad for your financial health. Only you can control yourself in making smarter choices. Keep your goals firmly in your mind as your guides. Have a financial plan, review it regularly to account for lifestyle creep, and follow it to achieve your dreams.

#2. Pay Yourself First

Lifestyle creep happens when you feel you have bigger spending power as your income increases. While the number on your paycheck can be thrilling, the true number you should be looking at is what you have leftover after you have paid yourself first.

Set up standing instructions on your bank account to make automatic deposits at the start of the month to the necessary buckets. You need to pay off your bills, pay off monthly debt, and channel money to your respective funds – investment, emergency, retirement, savings, etc. Only with what is left do you get the play with. In this way, lifestyle creep will not eat into money that you need to use for your needs, but rather it is from money that you can “play” with.

When you look at your paycheck and you get a happy thrill to see the number has gone up, reward yourself by reviewing your financial plan and budget. Does that sound boring? You should be excited by the idea instead because think about it, this is money you can channel into achieving your financial dreams sooner or bigger! Or, more dreams! Review your plan and revise your standing instructions for automated deposits so you can pay yourself more first. If you could live comfortably with your spending budget the month before, there’s no need to increase the spending budget just because your salary has increased. Fuel your dreams towards achieving your financial goals instead.

#3. Get the Right Kind of Peer Pressure

It is a fact that for many of us we are affected by what others think. The difference is the degree to which each of us is easily or not so easily influenced by those opinions.

If you know for a fact you are easily swayed by others, then surround yourself with the kind of people whose influence has a positive impact on your life. Find like-minded people who help build you up instead of tearing you down. Get friends who also understand the importance of sticking to a budget. Such friends would also be good sounding boards if you need to talk out your thoughts as you deliberate financial decisions that lifestyle creep brings.

When you have friends who are a positive influence, you get to reset who the Joneses are. Keeping up with the Joneses brings on a different meaning when instead of foolishly spending on unnecessary luxury, you are instead spending wisely on having a life that you see your ideal role model living.

Bear in mind that material possessions do not define you. Your values do.

#4. Make Conscious and Gradual Lifestyle Changes

Lifestyle creep is not a clear cut big bad no-no. Yes, maybe you could survive in a shoebox apartment room eating instant noodles for ever meal, but it would be rather extreme to insist on continuing with that lifestyle when you have a family and a household income of say RM10k.

Find a middle ground. What do you define as a modest lifestyle? Use your like-minded friends as a sounding board. Consciously deliberate your choices carefully. And then, adjust your budget accordingly. Review your long-term financial plan to ensure you are still on track in achieving your financial goals.

#5. Lifestyle Creep in Golden Years

While most people think lifestyle creep impacts young adults or middle-aged adults (*koffkoff* the stereotypical male mid-life crisis!), it is also important to note how it will impact retirement plans of those who are approaching retirement age.

It is common for retirement to be celebrated. Decades of hard work are now over. However, two big questions to ask are:

Take all these questions into consideration and re-look at your retirement plan. Review and gradually adjust your financial plan to ensure your hard work will lead to a rewarding yet sufficiently modest lifestyle. Perhaps semi-retirement is a better path for you?

Conclusion

Lifestyle creep creeps up on you. As your hard work pays off and your income increases, small choices can build up to have large consequences. Deliberate over your choices and regularly review whether your lifestyle decisions adversely impacts your ability to achieve your financial goals.

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How else have you escaped lifestyle creep? Share your thoughts in the comments.