What is Lifestyle Creep?
Lifestyle creep is a very common phenomenon where as your income increases, so do your expenses. So maybe as you get that pay increase you decide to buy a fancy car, or buy a house that has a mortgage that really stretches your budget. It is lifestyle creep that sees professional sports people that earn millions going bankrupt. Or well paid professionals drowning in credit card debt. It can happen to anyone, and probably happens to all of us at some point in our lives.
Why is Lifestyle Creep Bad?
Lifestyle creep may seem harmless in the beginning. Many of us will experience this when we got from part time or casual work to full time work. This kind of creep is pretty reasonable, as we can’t keep living like poor students or living at home forever. However, if our expenses continue to climb as our income does, it means we will rely on that increased income. This makes it difficult to be flexible with our careers and jobs, as we need a higher income to afford to live.
Lets use an example:
If you are earning 100k p.a. and your expenses are 80k p.a., and you are starting to burn out or want a career change. You don’t have the same flexibility as someone whose expenses are say 40k, as you need to find a job that will pay for your lifestyle. You probably wouldn’t be able to go back to university or go to any other entry level job until you start cutting expenses.
The person that is earning 100k p.a. and is only spending 40k a year will have sooo many more options. Not only will they be able to take a pay cut and survive, but they potentially have additional savings or investments that they can rely on.
How Do We Stop Lifestyle Creep?
The easiest and best way to prevent lifestyle creep is to put any extra income straight into savings or investments. If you get a pay rise, automatically transfer that money straight into another account so it is like it doesn’t even exist. You have already been living without that money until now so you won’t miss it anyway! If this doesn’t appeal to you, maybe use the first bit of extra money as a little gift to yourself, but after that transfer it so it is out of sight and out of mind!
I’ve managed to keep a similar level of expenses to my first year in my job as a paramedic. That has afforded me surplus income to invest in to the share market, buy a home and travel overseas. It has also allowed me to drop back to part time and still afford to live. If I had been living an inflated lifestyle, I wouldn’t have been able to afford this option and would be very burnt out working full time. Having low expenses and no lifestyle creep has given me flexibility and choice in my life. You won’t see any golden handcuffs here!