Lifestyle creep is a situation in which one’s expenses start increasing along with increasing income. It is also called lifestyle inflation. This is a general situation in which as an individual’s income increases, their non-essential spending also rises. For example, buying expensive clothes or gadgets, engaging in costly hobbies, going on frequent vacations, etc.
Due to this, gradually, the increased income, which could have provided financial security, is spent on expenses. This can create adverse effects on finances, from multiple debts to financial insecurity.
Have you ever faced this? If yes, it is time to think rationally and work on personal finances before it is too late. Therefore, it is vital to know how to manage money wisely and avoid lifestyle inflation.
Why does lifestyle inflation happen?
There are many reasons for lifestyle creep. Let’s know about them.
- First, psychological factors like social comparison. There is a feeling of pride when comparing themselves with each other. When people see their peers, workers, or relatives enjoying expensive things, they tend to maintain their standards. They spend on expensive items to follow the standard of living of the community or society.
- The second is an instant pleasure. The things which give instant pleasure also tempt people to spend on them. Also, they feel that since their income has increased due to their hard work, they should reward themselves. As a result, they make impulsive purchases, which gives instant and temporary pleasure. But it affects long-term financial stability.
- Third is losing track of spending. As people earn more, they forget to take care of their spending habits. They worry when there is a salary increase, which causes them not to be able to earn even a little. Initially, these expenses are not noticed, but gradually, when they start creating financial issues, you can notice them.
- Another factor is a change in circumstances and expectations. As soon as somebody’s salary increases, there are some unexplained expectations that get ingrained in people. For example, someone may feel that a salary increase means one should start living a luxurious life.
Due to this, they upgrade everything. Expensive cars, vacations, etc. To buy these things, people start taking loans for every purchase, even if they are in a poor credit situation. They take multiple short-term or small loans in Ireland for bad credit. However, if used sensibly, these loans can be used to improve credit rating. Borrow for a real reason like car repair and repay affordable instalments on time. The result is a rise in credit scores.
- Then comes the factor of peer influence. Spending habits of people in your professional network or social circle can easily affect you, like business colleagues going on expensive trips. You may feel the urge to do the same. Otherwise, some friends who throw expensive and lavish parties provoke you to do the same. As soon as income increases, a person tries to match the standards of living of people around him.
- Next is convenience and comfort. As soon as income rises, everyone thinks of increasing their comfort and convenience. Cooking at home looks odd now. Eating outside becomes frequent. Hiring cleaning services often, too, is a habit of lifestyle creep. Expenses like these seem useful at that time. But they contribute to your financial stress to a great extent.
Risks of lifestyle creep
When this lifestyle inflation starts affecting your finances, you have to face some kind of risk. Let us know what those risks are.
- First, lack of financial security. This is the first risk that you realize in a lifestyle situation. Due to your habit of spending more, you feel the need to earn more for a longer period of time. The money that you could have invested or saved, you spend on unnecessary things, making yourself financially insecure.
- The second factor is increased stress. Once you start getting a higher salary, you feel quite secure. But gradually, you increase your expenses on unnecessary and luxurious things. Due to this, spending more becomes your habit. Along with this, you realize that you need to work hard to maintain these spendthrift habits. As a result, your stress level increases. All these things ultimately give you stress.
- The third one is missing Long Term Financial Goals. If you spend an important part of your hard-earned money on non-essential things, you are not able to achieve long-term financial goals. For this reason, you have to face financial insecurity in the future. Due to the circumstances, you are also not able to achieve small targets like saving money or creating an emergency fund.
Tips to avoid lifestyle creep
If lifestyle inflation is not addressed at the right time, it can completely spoil my life. Therefore, it is important to work on methods that can help you avoid it. Let us know which of those easy but effective methods is the best.
- Track your spending. Lifestyle inflation, first of all, spoils your spending habits. You forget to take care of how much money you are spending. Therefore, first of all, it is important that you learn to track your spending. You need to take care of your expenses.
- Create budget. Budget can improve your spending habits. When you do budgeting, you allocate your money only for necessary expenses. At the end of the day, compare your expenses with your budget. This will let you know whether you are following your budget plan properly or not.
- Live below your means. Lifestyle creep happens because you start spending money beyond your earning and payment capacity. Therefore, it is vital that you spend less than your earning capacity. Keep your monthly investment targets high and save more.
- Avoid debt accumulation – When you get into the habit of buying things randomly, many things are bought in instalments. Due to this, you become a victim of multiple debts. In fact, you start misusing the financial products that are known for providing support during a real financial emergency. For example, instant loans in Ireland offer speedy funds. If you are ill or need to rush for a funeral, these loans are perfect. But taking them to buy fashionable clothes is foolish. Work on your debt management plan. Think twice before taking any new loan. Take debt only for essential things.
- Invest in experiences like hobbies and travel. This gives you experience as well as knowledge. And you also learn to use money wisely. For example, when your income increases, you can acquire a new skill by doing a new course. That skill will help you earn more money. But if you use that money to buy materialistic things, it will not do anything in your life. Rather, it can affect your finances.
- Differentiate between needs and desires. People forget to differentiate between their needs and desires after an increase in income. They start considering their desires as their needs. For example, earlier you used to eat in a restaurant once or twice a month. Now you go out to eat every day. You feel that since you have extra money, why should you cook food at home? Why tire yourself out? Instead of this, you prefer to eat out, but these habits gradually affect you and your finances.
- Surround yourself with like-minded people. One of the big reasons for overspending is peer pressure. Therefore, it is important that you keep such people away from your surroundings who provoke you to spend more. Instead, try to create a group of people around you who want to stay away from situations like lifestyle inflation.
- Last but not least, review your financial goals As you make efforts to avoid lifestyle creep, review your financial goals regularly. This helps you know if you are moving in the right direction. Every time you renew your financial goals, you get a new update. Once you understand them well, your personal finances will improve.
Conclusion
After the above information, it can only be said that lifestyle creep is caused by a lack of self-realization. Whenever you get a rise in income, it is necessary to understand your weaknesses.
Think if your expenses are increasing beyond a limit, what effect can it have on your present and future financial situation? Through rational thinking, you can easily avoid careless and emotional financial decisions.
