How Lifestyle Creep Can Sabotage Your Savings
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Have you ever had a pay rise that just seemed to disappear the minute it hit your bank account? You’re the victim of lifestyle creep, a phenomenon that will sneakily steal your money.

Do you remember when you first got a job? You were probably on minimum wage, living in a very ‘cost effective’ living situation (damp, cold, shared flat), and making enough money to survive your very economical life. Do you remember thinking, ‘if only I made $100 more a week, my life would be so much better’?

Fast forward to today. You hopefully make that $100 more a week (or, a lot more). Has it made that huge difference you thought it would? That $100 a week is actually $5,200 more a year. That’s a huge amount of money… so, where did it all go?

Or maybe you got a new job, and you’re making $10,000 a year more. But at the end of the year, you look at your savings account and it’s not any different. And then you look at your life, and it’s no different either. What happened to your $10,000?

Perhaps you finally finished paying off your student loan. If you’re earning $1,000 a week, you’ll be paying $73.20 a week off your loan. You get that notification from the IRD it’s paid, and you decide you will put that $70 ‘extra’ a week into your savings… but after a few months, you realise you’re not saving it like you said you would, but you’re not sure where that money has gone.

What is Lifestyle Creep?

This is called lifestyle creep, or lifestyle inflation. As your income goes up, so does your spending. It happens slowly, like the frog in a pot, you don’t even notice it’s happening. It might be that extra pair of shoes you buy, the extra streaming subscription, or the more expensive brands of cheese you regularly splurge on at the supermarket. Whatever it is, your extra cash has gone, and you’re not sure how it happened.

Lifestyle creep can happen even when we don’t have extra money- and that is something that can be very bad for your finances long term.

How Do I Know If I’m Experiencing Lifestyle Creep?

Look back over the last few months. Has your income increased, but your savings haven’t? You’ve been making extra money, but you’re no closer to your financial goals?
Look at your credit card statement or overdraft balance. Is the debt increasing every month? Or, is the amount in your savings account decreasing?

Lifestyle creep can be forced upon us too. Your landlord might up the rent, your car insurance suddenly goes up, or there’s an increase in WiFi use due to working from home. While all of these things happen without your explicit approval, you haven’t done anything to counteract them either.

You can try to explain it away; after all, December is an expensive month, or the car broke down in March. But, if this pattern happens month on month, something needs to change.

How to Stop the Creep

It’s super important to stop lifestyle creep. It erodes your finances, slows (or stops) you from achieving your goals, and often the things you’re spending on don’t make your lifestyle that much better anyway.

You need to make sure you stick to your plans, having a savings buffer for emergencies, and achieve your goals.

1. Create a budget
Take some time, sit down, and create a budget. It sounds a bit intimidating, but all you’re doing is seeing where your money comes from, and where it goes. It can be quite confronting when you realise you’re spending way more than you thought at the local café, the supermarket, or on online stores.
The point of this is simply to see where your money goes—and if it’s good use of your money, or not.

2. Set your goals and plan ahead
If you haven’t already set your goals, do it now. It truly doesn’t matter what your goals are, everyone is different. What’s important is how you’re going to achieve them. Right now, you know your income, your outgoings, and how much you’re (hopefully) saving. But having concrete goals to aim towards makes it easier to set the money aside. Now, plan ahead. Money very rarely falls into our laps from nowhere. We know we are due a raise, or our shareholder payout is due, or that you are paying off that student loan. You know that money is coming; now, plan for it. You don’t have to live the life of a monk, maybe plan to save 50% of the pay rise, and the rest can be used for a mindful lifestyle boost.
Also, you need to take inflation into account. Every year, the cost of goods increases, so in order for your standard of living to remain the same, you’ll need to spend a bit more.

3. Make it difficult to creep
If you know that money is incoming, make sure you never get a chance to fritter it away. Have a direct debit set up so that it disappears into savings before you can spend it.
Also, if there are expenses that are going up each year, such as insurance, do some shopping around. Plan to review this once a year—can you get a cheaper deal for your electricity bill, internet, or can you lump your insurances together and get a discount?

4. Celebrate
Just like a super tight budget is setting you up for failure, so is not celebrating your wins. If you do get a pay rise, the first month it rolls in, buy yourself those boots you’ve been eyeing up, or go to that new fancy restaurant for dinner.
Don’t sacrifice fun or happiness, but remember to celebrate your hard work. As long as you don’t celebrate every week.

5. Get Professional Help
If you’re struggling to save money and you genuinely feel stuck, or maybe you think you could just do better, get help from a financial professional. Sam Kodi can help, whether you’re trying to plan for your first home, or for a business, or something else altogether. Stop lifestyle creep before it steals all your money.