What to do if 'lifestyle creep' is affecting your bank balance

So, you’ve just been promoted? This opportunity typically brings with it a new title, more responsibility and an increase to your pay packet.

Having more money every month can help us live more comfortable lifestyles and put our minds a little more at ease – with more cash to put towards things we want and for our rainy-day savings. 

But in the months that follow a promotion, it might be that you’re not seeing that extra money materialise in your bank account.

If you’re pondering the reason behind this, it could be that you’ve have fallen victim to ‘lifestyle creep.’

James Andrews, senior personal finance editor at money.co.uk, explains this phenomenon in a little more detail.

He tells Metro.co.uk: ‘“Lifestyle creep”’ describes the process of how an increase in income can bring about a taste for the finer things in life, adding to one’s regular expenses and limiting the amount being added to savings accounts, retirement funds and other long-term plans. 

‘Essentially, it’s how your spending increases to meet the money you have available.

‘Some of the more common areas those affected are spending their additional income on include higher rents/mortgage payments, expensive hobbies or subscription/memberships, dining out at expensive restaurants and bars, booking five star holidays, and owning the latest “must-have” technology and gadgets. 

‘Those suffering with lifestyle creep will gradually start to think of these purchases as a necessity, rather than a luxury.’

In a nutshell, it’s when people don’t see the afterglow of a pay rise – but instead are left disappointed by the figures in their bank account. 

People might find themselves spending more than before, because their rationale is that they have a new salary to back it up. 

While this is true to a point, it’s when this snowballs that ‘lifestyle creep’ occurs – and when financial problems can follow.

‘By becoming accustomed to costly services and products that promote this “living the dream” mentality, individuals who succumb to lifestyle creep may also find themselves living paycheque to paycheque in a similar way that they did when they were earning a significantly lower salary,’ adds James. 

‘They may also be over reliant on overdrafts and credit cards to pay for any unexpected bills that come their way, due to their lifestyle “upgrades” draining the majority of their disposable incomes.’

If you think you’re splurging more than you should following a pay rise, the good news is there are steps that can be taken to get your finances back under control.

Tips for taking control of lifestyle creep:

Give yourself a financial MOT

Zainab Kwaw-Swanzy, a millennial finance specialist at Barclays, explains that a good way to feel more in control of your finances is to take a comprehensive look at your account. 

She says: ‘Start by using the spend categorisation feature that might be available in your bank’s mobile app, or you can print off your bank statement and create spend categories by colour coding the different areas of spending. 

‘Seeing everything in one place can help you understand more clearly where you’re splurging the most, and the areas that you can start to reign in and put towards a saving buffer to get financial peace of mind.’

Treat yourself, but not to everything

‘No one is denying that those who’ve worked hard to achieve financial success shouldn’t reap the benefits,’ continued James.

‘But in order to avoid debt, it’s worth considering a certain area of your life you’d like to upgrade or improve – rather than the whole thing.’

If you want new pieces for your wardrobe, to book a holiday and to go out to some new places for dinner, trying to cram all this in at once will make saving impossible and even leave you worse off than before your earnings were boosted.  

It could be a good idea to make a list of one or two ‘treat yourself’ items you want to buy that month and factor them into your monthly earnings.

Ensure saving is still your priority

If the pandemic has taught us anything it’s that life can be pretty unpredictable and it’s always good to have an emergency fund in case you’re unable to work (and to generally make us feel more financially secure). 

So it’s important to still keep putting money away, even when you’re earning more – and setting yourself new savings goals can help you achieve this. 

James says: ‘Many find it useful to stick to the 20-30-50  rule when it comes to budgeting and saving.

‘As soon as you get paid each month, 50% goes towards essential expenses (like rent, bills and groceries), 20% goes towards saving, paying off existing debt or investing in your future, leaving the final 30% to be used flexibly on whatever you want.’

Pay yourself on pay day 

‘With a new spike in monthly pay, it’s more tempting to splash out and treat yourself on a more regular basis,’ says Zainab. 

So it’s good to get into the habit of moving some money straight into a separate savings account, every time you’re paid. Then keep the rest to spend throughout the month.

She adds: ‘This means you remove the physical temptation to dip into it – as out of sight is out of mind.’

Focus on you, and not what others around you are doing

Everyone’s financial situation is completely different – so it’s vital not to compare.

James adds: ‘Comparison is the true thief of joy, and if you constantly find yourself comparing your own finances and wealth with what others have, then you will never be happy. 

‘Anything you spend hard-earned money on should be purchased as a result of the happiness or help it will bring to your family, and not to keep up with others or for bragging about on social media.’

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.

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