Lifestyle creep: What is it and how to avoid it?

What is Lifestyle creep?

Simply put, it is an increase in expenses as there is an increase in income. There is nothing wrong in wanting a better life as your income increases, but it should only come because you want it and it is a financially prudent decision. Else you will be going backward on your financial independence journey. Lifestyle creep essentially boils down to two things

  1. Buying or doing things to impress others
  2. Increase in expenses as your income increases

 

In this post, we will explore two ways to tackle these two issues - the first one by developing a strong internal compass and the second one by evaluating lifestyle increases

 

Develop a strong internal compass

We will be given many options as we progress through life - a career switch, a pay change, a different car to buy etc etc. A key aspect that we need to cultivate before we make these decisions is to define a strong internal compass.

 

What is an internal compass

Essentially these are values and aspects of your life that you hold very dear. Usual examples are health, relationships, career etc. It is important to define clearly what is important to you and rank them. It is best to do this exercise when you have a calm mind. Because when life throws options at you, you will be tempted. That state of mind is no place to define what is important, it is simply a question to evaluate every financial decision against these values.

 

Handling Lifestyle Increases

There are essentially two types of lifestyle increases,

  1. One time lifestyle increase (dining out)
  2. Recurring lifestyle increase (increase in rent)

 

Explore recurring lifestyle increases only after you have fully derived value out of one time lifestyle increase. It is easier to go back from a one time lifestyle increase vs a recurring one. You will never willingly go down in lifestyle. So be careful when making lifestyle upgrade choices.

 

Also, evaluate the true cost of things, it is not always the price tag of the thing you are buying. For eg a car will have a price tag but then there are so many other recurring costs like fuel, parking, cleaning, servicing etc etc. Not to mention the mental costs of handling these aspects as well. When evaluating a lifestyle increase, add up all these costs while making a decision. If you are comfortable with this total amount, then go ahead.

 

Conclusion

We work hard and we deserve to enjoy the fruits of the hard work we put in. Lifestyle upgrades may help here, so while evaluating your choices, do ask yourself whether this will give you/your family the maximum joy without peer pressure. Are there onetime lifestyle increases that can help you itch this feeling. What are your views on this topic? Let me know in the comments below


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