We’ve all been there. You get a pay rise, and one month later, you find that your bank balance looks no better than before. Welcome to the frustrating world of lifestyle creep.
The dangers of lifestyle creep are clear. As soon as we begin earning more money, we choose to spend our extra income on nice things that take our saving strategies back to square one.
First of all, let’s be clear: there’s nothing wrong with a little lifestyle creep. After all, we work hard for our pay rises, so it’s only right that we enjoy them, right? The problem is that we can be unwittingly sucked in by lifestyle creep in a way that adversely affects our ability to save.
Even worse, lifestyle creep can make our old luxuries seem commonplace, meaning that we’re not fully enjoying having the power to order more food takeaways or indulging in retail therapy.
So, how can we keep ourselves protected from the dangers of lifestyle creep? Let’s explore the phenomenon in more detail before taking a look at our options:
How Does Lifestyle Creep Work?
The biggest problem with lifestyle creep is that you’re not only spending more money but that your new expenses creep up on you in a way that adversely affects your enjoyment.
For instance, your increases in food deliveries can turn into a habit, rather than a special occasion. Or you begin spending impulsively for the sake of it with less excitement for your big money purchases.
You may also add new subscription services that you rarely watch, or buy video games that you’re not as interested in playing.
Worryingly, these instances can snowball into an unfulfilling cycle. In fact, Starling Bank data suggests that almost 30% of people earning £100k don’t have enough money for essential expenses like bills and groceries due to overspending.
It’s clear that no matter how much you’re earning, lifestyle creep can cause you to struggle when it comes to making ends meet, let alone saving for the future. So how can you overcome this danger to build your savings?
Fighting Back Against Lifestyle Creep
While there’s nothing wrong with enjoying a better quality of lifestyle, our savings could suffer as a result of creeping outgoings, and we may have less to show for our higher wages when it comes to achieving our financial goals.
Fortunately, there are a few measures we can take to ensure that we still enjoy our wage increases without losing our savings potential, let’s take a deeper look at them now:
1. Create a Strong Savings Strategy
The best way to navigate a higher income without the threat of lifestyle creep is to commit to a strong savings strategy.
One approach that’s grown in popularity over time is the 50/30/20 rule of saving. This works by allocating 50% of your income towards essential expenses, 30% to non-essential expenses, and the remaining 20% to your savings.
The great thing about the 50/30/20 rule is that you get to enjoy your pay rises by increasing your spending on non-essential items like food deliveries, subscriptions to Netflix, and dining out with friends, but also improves your commitment to saving more money each month.
2. Get Tax Efficient With Your Savings
When you save, be sure to use a strategy that makes your money stretch further in a tax-efficient way.
Opening an ISA means that you can use a £20,000 allowance each year that can help to grow your savings faster without paying any tax on the earnings that you make.
If you’re struggling to overcome lifestyle creep, using an ISA can help create a safety net that not only builds your wealth over time but can be accessed should your expenses unwittingly become too high at some stage.
Just be sure to make the most of your tax-free allowance before the tax deadline at the end of each financial year to improve the efficiency of your earnings.
3. Set Clear Financial Goals
Another great way to protect yourself against lifestyle creep is to set clear financial goals to ensure you remain motivated to avoid overspending.
Whether your ambitions focus on paying off student debts, buying a house, or even a one-off purchase in the months ahead, setting goals helps you to focus your spending and avoid the temptation of impulsive buys.
Never Suffer to Make Ends Meet
The problem that many of us face when we realize we’re overspending is that we can go to the other extreme and deprive ourselves of fun things to galvanize our savings.
If you find that you’re struggling for financial comfort as a result of punishing yourself after a costly month, it’s time to reassess your spending habits.
Lifestyle creep can affect even the most diligent of savers. Don’t punish yourself, and instead, look to strike a balance between your savings and spending each month.
Overcoming the Creep
Lifestyle creep is a negative side effect of a positive circumstance. Earning more money is great news for our budgets and ability to save. In finding the right balance between enjoying your higher income and saving the right amounts, you can enjoy a more comfortable lifestyle that continues to pay off long into the future.
