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Is ‘lifestyle creep’ stopping you from saving?

Getting a pay rise is up there with one of the best feelings you can experience. But if you’re not saving any extra money – despite the bigger paycheck – then you may have fallen victim to ‘lifestyle creep’. Here’s what it is, why it happens, and what you could do to combat it.
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It sounds like something out of a horror movie and, truth be told, ‘lifestyle creep’ can be scary at times! Also referred to as ‘lifestyle inflation’, it’s when you make more money, so you spend more money.

But why is that a problem?

Well, let’s say you land yourself a promotion at work or, better still, a brand-new job that pays more. So, you trade in your 10-year-old car for the newest model on finance, move to a bigger home in a nicer area, and ditch your local budget gym for that fancy health club instead. These are all examples of lifestyle inflation.

Now, it’s perfectly normal to upgrade your home or car when you finally earn enough money to do so (after all, you probably weren’t planning to rent a one bed flat forever). And if you worked hard to get that new role, then it’s natural to want to treat yourself.

But if your spending is increasing at the same rate as your salary, then you could find yourself in a tricky situation when it comes to your finances…

Am I a victim of lifestyle creep?

It can be easy to miss the signs of lifestyle creep. It may be as simple as doing your weekly shop in M&S instead of Aldi, getting your hair done every month instead of as an occasional treat, or swapping your yearly staycation for two holidays abroad. Now, even though these might seem like little things, they can add up over time.

And if you find yourself regularly turning to loans, credit cards and ‘buy now, pay later’ services to fund your new lifestyle, then this is a clear sign that it may become unsustainable in the long-term.

Plus, if your bank balance and savings pots don’t seem to be growing much (or even going down), then you might want to rethink your spending.

What is the impact of lifestyle creep?

Even though lifestyle creep could mean you have nicer things and enjoy more fun activities, it could also mean that you’re not in a better financial situation (even though you should be). You could still be counting down the days to payday, which can be stressful and take its toll on your mental health.

And although it can be tempting to live in the moment and enjoy your money now, if the last few years have taught us anything, it’s to be prepared for anything to happen.

Just think of all those people that secured low interest rate mortgages a couple of years ago; many of them are now facing big increases to their monthly outgoings as their fixed rate deals have come to an end and interest rates have soared.

Although you shouldn’t live in fear, keeping your outgoings sensible and ensuring you have savings to fall back on could make all the difference.

How can I prevent lifestyle creep?

Reading this and relating a bit too much? Then don’t worry, because here are some things you could do to decrease your spending and boost your saving.

  1. Review your spending: sitting down and looking at your outgoings over the last six months or year could give you a clearer picture of where you’re spending frivolously.
  2. Cut costs where you can: once you know how much you’re spending, you can see if there are any areas you can cut back. Could you cancel the streaming subscriptions you don’t use? Could you do your grocery shopping somewhere cheaper? Do you need a gym membership, or could you do home workouts or run in your local park?
  3. Create a budget: Having a set budget could help to keep you on track as you’ll have something to work towards each month — just make sure it’s realistic.
  4. Consider your purchases: before you buy something, wait a few days to mull over the decision. You may find that you didn’t really want it and the urge to buy it passes.
  5. Set savings goals: Whether it’s a house deposit, holiday, or even an emergency savings fund, having targets and rewards for how much you want to tuck away could help to keep you motivated and curb unnecessary spending.
  6. Invest in your future: once you have an emergency fund and other savings, investing what you have left over could give your money the potential to grow. And because investing is something you do for the long term (at least 5 years), you’ll need to sell your investments to withdraw your money, meaning it won’t be easy to access – or easy to spend.

Please remember the value of your investments can go down as well as up, and you could get back less than invested. 

Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.

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