Everyone at some point in their life imagines progressing from a place of just getting by financially to a place where money no longer is a worry (or as worrisome). This is why so many people strive for more financial security through promotions at work or by taking on a side hustle. For others, coming into money unexpectedly can yield the same result.
Regardless as to how it happens, as people gain more financial independence, it is inevitable that upgrades are made to their lifestyles along the way: expensive cars, larger houses, more expensive (or more frequent) vacations, or simply by acquiring more things. The trendy term for this is titled Lifestyle Creep, but trendy or not this is a very real thing.
While there is nothing wrong with upgrading our lives as we accumulate wealth, being aware of your financial indulgences as you become increasingly successful can help avoid many of the pitfalls associated with lifestyle creep, some common examples being:
- Increasingly accepting promotions in a job you dislike, to the point of being afraid to take a lower paying position in a different job simply because you cannot afford to give up the salary.
- Being unexpectedly out of a job with significant monthly expenses to pay for, leading to high degrees of stress and anxiety, even bankruptcy.
- Living a lifestyle that is detrimental to your overall mental health and physical well being; but feeling powerless to break the cycle because you do not want to give up the things you have become accustomed to needing (or not wanting to ask dependents to give these things up as well)
Whatever the pitfall one is experiencing with lifestyle creep, awareness as to whether this is happening to you and being mindful of your financial situation and spending behavior is key to avoiding some of the stress and anxiety associated with lifestyle creep. Also knowing when to dial your spending back and asking yourself whether these things are really ‘needed’ or whether certain spending habits will give way to even larger spending habits is also helpful in being mindful towards lifestyle creep.
So, what to do?
Try the exercise of going through your spending behaviors and thinking through what you would do if you one day did not have the cash to pay for these things. What things would stay? What would go? Is there anything you can cut out now that is not really needed or serving you that could instead be set aside in a rainy day fund? Also try thinking about whether or not you are truly happy in your job or whether you could stomach a job that pays less but that offers you more satisfaction or mental well being: these are critical factors that you should be aware of when making career decisions to avoid the situation where you find yourself ‘trapped’ in a well paying but high stress or deeply dissatisfying career.
This exercise may seem unnecessary if you are currently happy and do not envision any abrupt lifestyle changes, but imagine how many people were drastically affected recently with the pandemic who likely never saw it coming. This exercise trains you to plan for a future where your financial security may not support your current lifestyle, or for a shift in career that may not leave you as well off financially (but well off in other ways). Don’t blindly spend your cash: know what your spending habits are. After all, there is a difference in actively choosing to lead a particular lifestyle that you can afford vs. indulging blindly out of habit.
But I won the Lottery, I’ll never have to work again!
You may never have to work another day in your life, but lifestyle creep can affect you (at a highly amplified rate!). How many stories have you heard where somebody wins the lottery and after a few hard years of partying and expensive cars, they are a shell of their former self. Talk to a Saskatoon financial planner, set goals and realistic objectives and put a team in your corner to help you live the exact life you want to live within your means and protect your wealth. Living for many years purely off the interest from your fortunes for the rest of your life and leaving a legacy is a pretty rewarding experience. A good investment advisor can make that happen.
