Staying Focused and Avoiding the Lifestyle Creep

To clarify at the top of this article we are discussing the process of managing your quality of life and what is important to you as your earning grow, not an unsavoury character in your social circle, “the lifestyle creep”. I am sure there are some creepy types in the lives of some people, but I am afraid we are not addressing that today.

To the real topic. One of the satisfactions of working with a financial planner to construct and implement your own bespoke financial plan is the knowledge that you can realise your goals. You can see the projections of what you can achieve, the steps you need to take, and the regular reviews to ensure you remain on track. You have someone to work with you, and the structure can provide peace of mind.

An enemy of this is one of the first things you are taught when studying economics: there are needs (things you must have) and wants (items you would like to have), and that wants are infinite! They are limited only by one’s financial ability to acquire them.

Lifestyle creep, or you may want to call it goal interference, is when you increase your expenses as your income rises. It is not just your actual income though, it can be your perception of feeling financially wealthy. This discretionary spending increase may happen in line with your increased earnings, such that you used to have €500 left over at the end of a month, and after a pay rise, you still have only a €500 surplus. It could also be more insidious where after the pay rise, your surplus seems to have evaporated.

Hoe does this happen?

It usually occurs through lots of small purchase decisions. Here are some examples:

• You take an Uber instead of taking public transport;

• You get dinner delivered instead of cooking your own meals;

• You go to the local café for that every morning coffee instead of brewing your coffee in your kitchen at home

• You buy your lunch every day you are at the office instead of making lunch and bringing it in to work with you.

• If you take the train to work you upgrade to first class tickets instead of commuting second class.

One their own and as one-off activities these changes are not material. But if you make changes like these regularly, the impact on your finances can add up. Now we should clarify and reiterate the point that at Black Swan Capital we are objectives based financial advisers. This means that we focus on what is most important to you. If what is most important to you is the compilation of these actions, there may be an argument for building them into your plan, subject to your long term security, but these changes generally occur subconsciously.

Wrapped up in the subconscious decision making may be some psychological adjustments, such as signalling to colleagues or friends that you are at a new level since that promotion or pay rise. The need for validation may drive some decisions.

It appears that as we make these decisions to increase our spending, they embed into our lives as the new level of normal- our baseline rises. This means that the satisfaction of the espresso at the café relative to the home brew might be short lived as the café becomes the norm. Humans then tend to look for the next fix that will make them feel good like the café fleetingly did. And therein is the path of increased spending to chase that feeling, all the while slowly weakening your financial position.

We also cannot ignore the powerful marketing telling us to reward ourselves for our hard work (by giving them our money) and social pressures particularly through some social medial channels.

There are many bombardments that make not incurring some lifestyle creep rather difficult.

From a financial perspective, gradually ratcheting up your cost of living with each promotion and pay rise can have a compounding effect on you not achieving your goals. It can create cash flow pressure in the day to day and create stress as the targets you are aiming for appear to remain out of reach. You may have the promotion and bigger salary, you are taking on more stress and working longer hours, but are not really getting ahead.

What is the solution?

Having and maintaining a financial plan is an important start. This is because a good financial planner will spend time asking you to think about and focus on what is most important to you in your life, now, next year, in 5 years’ time and in the long term future. With clarity on what you want and what will truly make you happy, the plan can provide a guide for how to manage your money to get there. Having purpose and being able to see your progress towards the realisation of your dreams makes it much easier to save and more satisfying to allocate your hard-earned cash. It doesn’t mean you have to be a martyr and live monastically. We always advocate a balance but having an articulated and quantified target can not only provide direction and purpose but also reduce stress.

Day to day when you are having to make these many small but compounding decisions, the key word is intention.

Make decisions with intention and if you are unsure, think it over. If you can pause and ask yourself why you are buying something, you can assess and determine if it is a good decision or not. Sometimes it will be right to take the Uber or go to the café, but if you stop, assess and be intentional you can avoid a lot of financial leakage.  

Finally, be aware of how you spend. As most purchases are made with contactless payments it is easy to spend without even seeing the amount. We observed recently a café that said since contactless payments become the norm they have been able to double the price of their coffees because people rarely check what they are spending.

There are many pressures from lots of directions- marketing, social pressure, contactless payments, trying to make yourself feel better, and taking the path of least resistance- and without a plan and some useful practices, all this can compound to derail your financial life.

Speak with us at Black Swan Capital, we can help you build a plan so you can achieve what your really want, manage your finances pragmatically and get the most out of life. Contact us at info@blackswancapital.eu and avoid the lifestyle creep!