Remember the time, probably at the beginning of your career, when you were earning way lower than you do right now? Remember how you managed to get by with the little income you had. You were on a tight budget and so every coin had to count for something?
Quick question: When your income increased, did your financial situation improve as well? If you can answer a definite, honest yes, then you are not the audience for this blog. Come back next week. *Wink*
But if, whenever your income increase, somehow, ‘magically’, your expenses increase, if the moment you get those extra coins, it is as if your body starts rejecting some of the things that used to get you by just fine, if you are earning three times what you used to earn and you still have no savings and no investments, then it’s highly likely that you are under the spell of what’s known as lifestyle creep.
First things first, here’s an example to illustrate the difference between lifestyle creeps and improving your life. In my experience as a Personal Finance Coach, I have seen how most times the lines can be blurry. Say for instance, if you receive an increase in income and decide to buy a laptop with it because you don’t have one, that is improving your life. But if you use the increased income to purchase the latest MacBook just because it feels nice to be a member of the ‘Apple family’, that’s lifestyle creep.
Here are four signs that indicate you might be under the spell of lifestyle creeps:
Increased spending in many areas of your life
The first strong indication of lifestyle creeps is when most of the former luxuries start becoming necessities once you receive an income increase. Now, your car is not sleek enough. You trade it in for a luxury model. Or, you Uber when public transport could have worked just fine. If you discover that you’re spending more money in general because you believe you can afford it, lifestyle creep may be the cause and you need to address it.
Your savings are stagnant
If your savings have stayed the same despite salary increases and bonuses at work, that is a clear indication that you are spending all of the additional money on other things other then your financial goals.
Saving is a priority for your overall financial health and as such, any additional income should be reflected on the amount you put aside.
You don’t feel in control of your finances
You know that anxious feeling you get when you have overspent and decide to check your account balance? Or the dread and regret as you look at your shrinking funds and increasing credit card bills. You recall having a good deal of money, and you recall doing some things with it, but you can’t pinpoint what exactly those things are. These feelings are informing you that your spending exceeds your income. You need to go back to the drawing board, perform financial analysis and come up with a budget.
You are not budgeting
Ten out of ten cases of lifestyle creeps are because of a lack of a budget or failure to stick to one. When you don’t know where your money is going, it’s easy for lifestyle creep to take hold. If you don’t know how much money goes into unnecessary costs each month, you will overspend without even realizing it.
Lifestyle creep is one of the major financial mistakes that confine many people to living from paycheck to paycheck. It happens gradually, masquerading itself as an income problem when in the real sense it is a spending problem.
Want to know how you can overcome lifestyle creep? Check out this YouTube video where I explain how you can overcome lifestyle creep and build a sustainable lifestyle with your increased income.