3 Tips to Beat the “Lifestyle Creep”

Ever fallen prey to the “lifestyle creep” phenomenon? If your lifestyle ‘creeps’ up over time, negating the positive impact that your increased income should ideally have on your net-worth, you’re a victim. Here are three simple ways in which you can avoid falling prey to this all too common malady.

Live Life Debt Free

Instead of always aiming to ‘live life king-size’, aim to live life ‘debt free’. Champion savers know the importance of avoiding the habit of making impulse purchases using expensive loans. It’s a lot better to delay your gratification and save up for the eventual purchase that you’d like to make using cash, than to buy it using a loan and end up on the hamster wheel of incurring debt followed by repaying debt.

Obviously, some loans (such as a car loan or a home loan) may in fact be unavoidable. Even for those, it must be your aim to maximize your down payments and use unexpected windfalls money in the first half of the loan tenor to make pre-payments and bring down your monthly burden, freeing up funds for monthly goal-based savings. Remember that excessive consumerism is nothing but you robbing your future self of your wealth creation potential. Sleep on your decision to make a high-value purchase and ask yourself whether you really, really need to make it, before you eventually do.

SIP away at your goals

For achieving your long-term goals, Mutual Funds Sahi Hai! The seemingly simple act of writing your goals down, giving them shape and form, and starting an appropriate set of mutual fund SIP’s (Systematic Investment Plans) towards their achievement can have a powerful impact in countering the lifestyle creep. Mapping your goals will keep you focused on your longer-term objectives, while SIP’s will help you steadily build wealth towards their eventual achievement. What’s more; the savings habit, just like the spending habit, is addictive too.

It’s worth knowing that several Asset Management Companies now allow you to issue a standing instruction to step up your monthly SIP amount once a year. This is a fantastic feature that allows you to start small and build up your savings in a disciplined, consistent manner that’s in line with the expected increase in your monthly surplus. Increasing your savings by seemingly small amounts each year can have a colossal impact on your wealth creation. Here’s an example: Rs. 5,000 per month saved for your new born child’s college education in a SIP that provides a projected growth of 12% CAGR will grow to Rs. 38 Lacs in 18 years. However, if you were to increase your monthly SIP amount by just 10% each year, it would grow to 72 Lacs – a difference of 88%!

Stay away

At the expense of sounding philosophical, we’d like to warn you against the perils of social media when it comes to compounding the lifestyle creep problem! It’s natural to want to project an image of opulence and success in front of your peer group; especially when pictures of your friend’s brand-new car or vacation pop up in your news feed. Inherently, we’re all competitive beings. However, the highly detrimental habit of wanting to ‘keep up with the Joneses’ can damage your finances (not to mention, your peace of mind) in more ways that you can imagine. If you’re really unlucky, it can transgress the realm of causing mild financial damage and actually lead to your financial ruin. Be forewarned.

Rather than swearing off social media altogether, make it your philosophy to remain detached from it; using it only occasionally rather than making it an obsession. Cultivate the habit of remaining content with what you’ve been given, while working furiously and determinedly to improve your current position. Avoid making a big deal of your own lifestyle purchases on your social media pages too; you may just be indirectly contributing to somebody else’s lifestyle creep in the process! Consult with a Financial Advisor on how best to organize your personal finances.