Budgeting and Lifestyle Creep

Four years ago, I was earning minimum wage. Fast forward to today, and my income has significantly increased. However, despite this financial growth, I've fallen victim to something many of us unknowingly experience: lifestyle creep. It's easy to believe you're immune, but my recent review of the past year's expenses revealed that lifestyle creep has quietly set in. If you’re in a similar situation or just want to avoid this trap, keep reading for practical tips and strategies to get your budget back on track.

What is Lifestyle Creep?

Lifestyle creep occurs when your income increases, but so do your expenses. It happens so subtly that many of us don't even realize it's happening. The danger lies in gradually allowing unnecessary expenditures to become part of your routine, leading to a situation where your financial progress stalls, and your savings are compromised.

For example, you may have started earning more money, which led you to upgrade your car, buy more luxurious items, or go out to eat more often. These changes feel justified because, after all, you're making more money, right? But over time, these small lifestyle changes add up, and before you know it, you’re spending all the extra money you’ve earned.

My Expense Breakdown

To provide a clear picture, here's how my spending looked over the last twelve months:

• Mortgage: $60,000
• Groceries: $16,000
• Daycare (including swimming lessons): $11,100
• Rates/Insurance (including car maintenance): $11,500
• Bunnings (DIY stores & farm shops): $10,600
• Kmart: $10,100
• Pool: $32,000
• Savings: $30,000

These large expenses were planned, but what surprised me were the smaller, seemingly harmless expenditures that quietly drained my account:

• Alcohol: $2,420
• AliExpress: $1,860
• Audible: $350 (This is non-negotiable as I listen to about 230 hours a month)
• Clothes: $1,100
• Coffee: $780
• Board Games: $3,650
• Holiday: $1,700
• Takeaways: $5,500
• Video Games: $900
• Subscriptions (Disney, etc.): $650
• Gambling: $520

These expenditures are clear evidence of lifestyle creep. While individually, many of these purchases seemed harmless, together, they had a huge impact on my finances.

The Impact of Lifestyle Creep

Lifestyle creep not only affects your savings but also derails your financial goals. When your expenses increase alongside your income, you're unable to build the kind of wealth or security you hoped for. You might feel as though you’re still financially stuck, despite earning significantly more than you did in the past.

Even small purchases like coffees or takeout meals, which seem reasonable on their own, can quickly snowball into larger financial burdens. If you’re not mindful of where your money is going, you’ll find yourself living paycheck to paycheck, regardless of how much your income has grown.

Strategies to Combat Lifestyle Creep

Recognizing lifestyle creep is the first step to getting your budget back on track. Here are some strategies to help you regain control:

1. Re-evaluate Non-Essential Spending

Take a close look at your expenses and identify areas where you can cut back. Here are some examples from my own budget:

• Board Games: $3,650 – While they're fun, cutting back can free up significant funds for more important goals.
• Takeaways: $5,500 – Cooking at home more often can save you thousands of dollars each year.
• Kmart: $10,100 – Reconsider frequent purchases that aren’t truly necessary.
• Pool: $32,000 – A luxury, not a necessity. Think about redirecting this money towards something more beneficial, like paying off debt or investing.

2. Prioritize Debt Payment

If you have significant debt, such as a mortgage or credit card balances, it’s crucial to focus on paying it down as quickly as possible. In my case, I have a mortgage of $60,000. Rather than indulging in non-essential spending, putting extra money towards my mortgage would reduce my interest payments and help me become debt-free faster.

3. Use a Budgeting App

One of the best ways to stay on top of your finances and prevent lifestyle creep is by using a budgeting app. These apps can help you track your spending in real-time, categorize your expenses, and give you a clear view of where your money is going.

Some popular options include Mint, YNAB (You Need A Budget), and ZinaSaver. These tools can help you make more informed financial decisions and adjust your spending habits accordingly.

4. Set Clear Financial Goals

To combat lifestyle creep, it’s essential to set clear financial goals. Whether you want to save for retirement, buy a house, or pay off debt, having a defined target will help you stay focused. When you're tempted to spend on unnecessary items, remind yourself of your long-term goals.

5. Create a Realistic Budget

A well-structured budget can serve as a roadmap for your finances. Make sure to account for all your expenses, including savings, debt payments, and fun money. By setting limits for non-essential spending, you’ll be less likely to fall into the trap of lifestyle creep.

6. Review and Cut Unused Subscriptions

It’s easy to let subscriptions pile up without noticing. Even though services like Disney+ or Spotify might only cost a few dollars per month, they can add up over time, especially if you're not using them regularly. Review your subscriptions every few months and cancel any that you don’t use.

7. Practice Mindful Spending

When you're tempted to make a purchase, take a moment to ask yourself if it’s something you really need or if it’s just an impulse buy. Practicing mindful spending can help you reduce unnecessary expenses and prevent lifestyle creep from creeping into your budget.

8. Automate Your Savings

One of the easiest ways to avoid lifestyle creep is by automating your savings. Set up automatic transfers to your savings account every time you get paid. This way, you'll prioritize saving before you even have a chance to spend the extra money.

9. Live Below Your Means

Even as your income increases, it’s crucial to continue living below your means. This doesn’t mean you have to deprive yourself of enjoyment, but rather be intentional about your spending. Avoid upgrading your lifestyle just because you have more money.

10. Stay Accountable

Lastly, find a way to stay accountable to your financial goals. Whether it’s through a financial advisor, a friend, or a family member, having someone to check in with can help you stay on track and avoid falling back into bad habits.

Final Thoughts

Lifestyle creep is a subtle but powerful force that can derail your financial goals if you're not careful. The key to overcoming it is awareness and proactive budgeting. By regularly reviewing your expenses, setting clear financial priorities, and making conscious spending choices, you can avoid the pitfalls of lifestyle creep and ensure that your financial progress continues unabated.

Take control of your finances by tracking your expenses, using a budgeting app, and setting achievable goals. Remember, it's not about how much you earn but how wisely you spend and save that determines your financial future.