Up until a few years ago, I didn’t make much money. Around $25,000-45,000 per year. So like any responsible, lower income person with expensive taste, I had to be disciplined about following a monthly budget. I had budgeted amounts set aside for all of my favourite things, like restaurants, travel, beauty and shopping. And for the most part I stuck to them. Because I had to. Otherwise there was no way I could live within my means, or equally important, put money aside.
You see, I have the habit of spending more than I realise. It’s your regular case of optimism bias. So my budget was there to keep me in line. Then gradually, as my income increased, so did my spending capacity, and I started to allow myself a few more indulgences here and there. And then a few more. Besides, I told myself, I would start saving money again next month.
That’s lifestyle creep. Also known as lifestyle inflation, it refers to the tendency for people to gradually increase their spending as their income increases. Sound familiar?
From Lifestyle Cheap to Lifestyle Creep
Although I never fell into the trap of spending more than I earned, I was actually at the point of saving less money per month at my higher income than when I was earning $20,000 less! Merde.
I used to be so good with my money, how did this happen?
I had felt less pressure to monitor my spending against my budget. Since I had been doing well at staying on track in the past, I felt like I could loosen up the reigns a bit. Plus, I had more discretionary income now.
Tracking every transaction we make against a budget each month can get pretty dull and time-consuming, especially when things are going well. It can feel unnecessary. So I got lazy. (I now have a much better, much easier way of doing this, which I am excited to share with you soon.)
I had been pinching pennies throughout my 20s and early 30s, and it felt good to finally be able to buy myself luxuries like organic food and facials, without so much guilt and fear. So I started to do that. #scarcitycomplex If you know, you know.
Heck, I deserve it! I work hard and can afford it. What’s the point of saving for tomorrow if you can’t enjoy today? (Sure, but there are more systematic ways to treat yourself that don’t have you falling off your financial wagon. Especially for us financial freedom warriors with expensive taste.)
How Deep is Your Creep?
It’s a good idea to conduct a thorough investigation of your spending habits, money goals, and overall financial situation once a year. That way you will hopefully never get too far off track. This could involve reviewing bank and credit card statements or using an app like Mint.com to get an overall idea of where your money has been going. How much do you spend on rent, utilities and other essentials? What about groceries or restaurants or clothes?
Figure out how much money you have in the bank, debt, your emergency fund, TFSA, RRSP and other investments. Think about your financial goals for the next few years. A two-week trip to Tuscany? A down-payment on a home? Then come up with a plan for how you can best work towards them. I’ll share some ideas to help you along in an upcoming post.
If this all sounds a little overwhelming to you, you can also work with a money coach. I highly recommend working with flat-fee coaches (never those working on commission, which is a conflict of interest IMO). Money coaches are incredibly knowledgeable and, in my experience, their advice tends to save you more than what you have paid them.
Hello Budget My Old Friend
You knew this was coming, didn’t you? Yep, it’s time to digitally dust off that old excel spreadsheet or whatever you like to use to track your spending and give it a refreshing sprucing up. I like to use the budget feature at Mint.com because it’s secure and the automation makes the whole process at lot faster. But pick your poison. The point is, you want to create a budget and then stick to it.
Now, a budget doesn’t have to be that cliché document of numbers that eats up hours of your time every month and puts you to sleep. Think of it as a jumping off point to understanding your current spending habits and how you would like to organize your money going forward. It’s more of a financial freedom plan that, once setup, is easy to maintain, time-saving, and keeps you motivated. I will go into this in detail in an upcoming post.
For now, start by creating or updating a personalised budget for the new you. How much do you earn each month after tax? How much are your essential expenses, like housing and food? And how much of what is left-over do you want to save/invest. Whatever money is leftover can be divided up into non-essential budget categories, like entertainment, travel, wellness or however you like to spend your money.
For the first few months, as you get used to this new money strategy, I suggest comparing your actual spending to your budget. You can also check in anytime to track your spending during the month, such as before making a large purchase. Spending often adds up faster than we think, so we don’t want to accidentally go over budget. As long as you stick to your budget, you avoid lifestyle creep. And remember that you can reevaluate your budget at any time to adapt to changing income and lifestyle needs.
Sustainably Spendy While Responsibly Saving
Following some sort of a budget or money plan will help you meet your financial goals – and on time. While supporting responsible spending on the things you value most. Without any guilt over making large purchases (because they were planned!), and without the fear of running out of money. But it goes much deeper than that.
Geeking out over budgets and financial plans might seem boring, but I assure you, it can be incredibly empowering. Understanding and being in control of your finances is power. Having savings has the potential to elevate your self worth massively. It impacts how you see yourself and carry yourself in the world, and this spills over into all other areas of your life. Setting yourself up to pursue your passions from a financially secure place is invaluable. It’s a way of signaling to the universe that you believe you are worthy of the best and that you’re taking aligned action to manifest the life of your dreams.
Next time you feel that nagging sensation that you may be spending more than you should, take a moment to check in with your customised budget. Whether you get the green light to spend, or need to cut back, the decision will be a lot less stressful when you have the numbers to back you up. And rest assured that lifestyle creep will not be sneaking up on you anytime soon.
Disclaimer – The information on this blog is for informational and entertainment purposes only. It should not be taken as professional financial advice. Please consult your own financial advisor, money coach or accountant, and do your own research before making any financial decisions. We try to provide accurate information on personal finance and investing, but it may not apply directly to your individual situation.