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How to stop lifestyle creep from ruining your finances

Posted on 2022-05-27 03:00:00

Earn more, spend more? Uh-uh, bad idea.

Ever heard of the term “lifestyle creep”? It’s when your standard of living has improved because your salary has increased. Things that used to be a luxury five years ago (like that latte every morning) are now necessities because you can finally afford to have it whenever you want to. But when these luxuries/necessities start to take over your finances and you aren’t earning enough to keep up, that’s what a lifestyle creep is all about.

Also known as lifestyle inflation, it can be a serious damper on your financial goals. What’s worst is when these so-called necessities sneak (creep) up on you without you realizing that you’re paying for luxuries on a daily basis! All of a sudden, buying that RM15 cup of latte every day is normal… but that amount adds up and before you know it, any financial plan you had before… poof!

It's hard not to fall into the lifestyle creep. You think to yourself how you’ve worked so hard to finally get that raise to be in the next income bracket so surely you can give yourself a treat that you once only dreamt off. A weekly massage, an expensive dinner every fortnight, a more luxurious travel instead of roughing it out… we get it, who doesn’t love a treat right? Plus, why bother working so hard if you’re not going to enjoy the fruit of your labour?

But the problem with lifestyle creep is that before you know it, these expensive treats soon become a necessity and you suddenly can’t live without them! And if you have friends who are also in the same pay grade, you’d feel the pressure to live up to their standards… which is bad if they are also spending much more on clothes, food and entertainment because they now have more disposable income.

How does lifestyle creep affect your finances? It’s easy to imagine: Say you used to earn RM2,000 per month and could only shop once in a while. You’re more careful with your money and think twice, thrice before you splurge. But now, say you earn RM8,000 which is wow, a lot more than RM2,000. Having that much more money means you have more cash at your disposal. That RM2,000 designer bag won’t put a huge dent in your take-home salary, you think. After all, you have so much more left over and hey, you can finally buy an expensive bag without having to save for a year!

But what if it’s that RM2,000 bag, the RM500 dinner for a birthday celebration, the RM300 hair treatment, the RM600 massage, the RM800 you spent on clothes? Whatever you earn will just as quickly disappear!

That’s the thing – lifestyle creep takes away the money that you are supposed to be saving for more important things (like your retirement plan or even buying a home) but instead you’ve spent the money on “necessities” (that’s what clothes are, right?). It destroys whatever savings goals you have and before you know it, you’re living from pay cheque to pay cheque. So essentially, you are spending instead of saving money, and you have created a lifestyle that’s filled with expensive treats, which can make it hard to maintain long-term (imagine “needing” a designer bag or shoes every other month! That’s a lot of money spent!)

What do you do to prevent lifestyle creep? The same if you were earning RM2,000 and not spending on expensive stuff – you have a budget and stick to it! It’s OK to want to splurge but do this only after you’ve put money aside for your retirement fund and investment plans.

Also, whenever you’re thinking of spending on something expensive, wait it out to see if you still want it. Many luxurious good are impulse buy, which can be a dangerous thing when you have the means to afford them. But before you hand over your plastic card, walk away and give it a night or two to think about it. If you’re shopping online, log off! Ask yourself this question: Can you live without it? If the answer is yes, good – don’t buy it. But if the answer is no, then ask this: Can you get away with a cheaper alternative?

Lay out your expenses in a spreadsheet so you know exactly where your money is going to. Nothing like seeing how you’ve spent RM10,000 on bags and shoes alone to get you to rethink your purchases.

Save first, then spend. Assign your salary to paying yourself first. Put money in an emergency fund, set aside some for savings, pay for your commitments first, keep some for bigger funds like for a home. Then only use the excess to treat yourself.

Another thing to be mindful about lifestyle creep: Be careful of those e-wallet and credit card payments. The thing about paying for things without using actual cash if you don’t feel the pinch because you don’t see the money going out of your account… until the end of the month when the statements come. By then you would have already spent more than you should!

Lifestyle creep is sneaky but you can be sneakier by being smart about your money.

Photo by Sasun Bughdaryan on Unsplash

By Mel Sim


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