Lifestyle Creep and How To Reverse It

There’s a term called ‘lifestyle creep’, which is used to describe the situation when somebody’s living costs increase with (and sometimes extend beyond) rises in their take-home pay.

You’re making more, but you’re also spending more.

Things that were formerly luxuries are now seen as necessities and coupled with the modern culture of instant gratification, it becomes easy to fall into a spending trap.

I think it is a natural reaction for anyone, since more income can provide a better standard of living, which can in turn result in more happiness. And everybody wants more happiness, right?

But you need to keep it in check – the spending, not the happiness.

Don’t let the over-spending creep in.

It’s referred to as ‘creep’ because it’s not always obvious that it is happening – it creeps up on you like a creepy money-sucking ninja and before you know it, bad spending habits are spiralling out of control and you’re now worse off than you were before your pay rise!

This can affect people at any age in any profession at any time – from graduates new to the workforce right through to those approaching retirement – and lifestyle creep can easily damage both short and long term financial planning objectives if you’re not careful.

Any situation that creates more surplus income than you had previously, whether it is a pay rise or the removal of an expense, such as school fees after your kids have graduated, can lead to the temptation to splash out on things you don’t need or can’t really afford, rather than behave in a more frugal way and save or invest more for the future.

Now I’m not necessarily preaching frugality and saying that everyone should forego living well now in order to live well in the future – that choice is yours.

But you’re reading a financial planning blog, so I’m guessing that you have at least a passing interest in planning your finances! 🙂

I meet a lot of expats through my job and I get to see the realities of their financial situations and I can tell you that lifestyle creep is not an uncommon phenomenon. (Go on – say that fast 10 times.)

I see loads of people that are on great salary packages with great benefits, but they are still going to struggle in retirement based on their current habits, because what should be disposable income marked for investment is actually being blown on non-essential items that have worked their way up to the status of seemingly essential items.

I’m not talking necessarily about spending money on big, lavish items like Ferraris and yachts, but the combined effect of multiple smaller expenditures.

And this scenario can happen easily due to various factors.

Firstly, unless you are working for yourself, you are highly likely to have more take-home pay each month AND have a lot of the major expenses covered by your employer.

Financially, that puts you at an advantage, but here come the potential spanners in the works . . .

The eternal holiday

You’re in a new country and the whole adventure feels like a holiday. And when on holiday, we tend to spend money more freely and do things liking eating out more often than we would at home.

Beyond a couple of weeks, that can get expensive.

The other thing is that the money you’re using will probably feel a bit like Monopoly money at first and it can take a while to adjust to the new currency and the cost of everything. In the meantime, it’s easy to throw it around without fully considering its value.

Damn you, Jones!

Keeping up with the Joneses is the next potential issue. When you’re new in town, it’s natural to gravitate to those you can relate to and expats mostly hang out with other expats.

Nothing wrong with that.

This is great for moral support, exchanging tips and good old-fashioned friendship, but typical expat activities, such as eating out, entertainment, trips and celebrations can be far more expensive than they are back home and can decimate that extra disposable income before you know it.

The travel bug

Nearly every expat I have met loves to travel. I guess that is a trait naturally associated with someone who chooses to live and work away from their home country.

And the accessibility and opportunity for travel can be a huge benefit of taking an expat post and it would be crazy not to take advantage.

However, if you also want to make full benefit of saving the extra income, you will need to find a balance.

As I mentioned earlier, a lot of things can be more expensive than back in your home country, so you need to keep that in mind when spending money on hobbies, leisure activities, food shopping and eating out.

The flip side of that coin is that there will be many things that are ridiculously cheap, so again – it’s about balance and if you want to use the advantageous position of having more income to save more for the future, then you’ll need to keep the spending in check.

Yes, yes – life’s short and, of course, you deserve some luxuries and you should have fun.

But the point about lifestyle creep is that over-spending habits can become the norm without you really noticing that it is happening.

Once you are into the habit of spending freely, dialling things back can be difficult, so here are some tips on what to do if you think that lifestyle creep is creeping up on you.

The first step is to recognise it and acknowledge that it is actually happening.

To do this, you might need to sit down and look at exactly how you are spending your money each month. Do it on a spreadsheet, so that you can see the figures in black and white.

Identify where you are spending the money and how much you are spending.

The next step is to implement some measures to rein in that spending.

Start small.

Cutting back on all the comforts you have become used to all at once can be painful, so don’t try and do ‘cold turkey’.

Sort out your expenses from the largest to the smallest and prioritise what you are willing to give up or reduce and then start removing or reducing them one by one each month.

Next, start tracking your spending.

Once a month should be sufficient. Treat your household like a business and cut spending wherever necessary.

Distinguish between what you want and what you need. They are not always the same thing.

A reduction in spending can come from a combination of places. For example:

Eating out at less expensive (expat oriented?) places
Drinking coffee at home, rather than Starbucks
Not making impulse buys
Considering trade-offs – e.g. local produce for imported
Investing instead of spending
Ignoring the Joneses – no need to keep up with them!

Don’t think that I am being critical of spending money and having a good time, but if you’re trying to build money for the future, something has to give.

You don’t need to live on a diet of water and chickpeas and join the online frugality community (yes, there really is one).

But at the end of the day, it is usually about compromise somewhere along the line.

Recognising and dealing with lifestyle creep is not rocket science, but actually taking action can be difficult, as it is a bit like dealing with an addiction.

Feel free to contact me if you have any questions.

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