Finally, that bonus lands in your paycheck. Now, you can buy that expensive gadget or the toy your kid wants. Oh, not to forget that designer dress or watch you have been eyeing on. Now, weekly family dinners at the restaurant and a few days of take-out are possible with a fatter paycheck. You can outsource the cleaning and laundry, too. And suddenly, a gadget update becomes a necessity.
But why is it that savings seem to get left behind. Even in a double-income household and after promotions and the addition of part-time gigs, it remains challenging to save money. It is not uncommon to even have more debt after an increase in income. Despite a higher income, there is little money left in the family budget for savings, retirement fund, college fund, and other financial goals.
Young Adults and Retirees, at High Risk of Lifestyle Creep
Lifestyle creep can come at any point. We have all had to justify impulse buys at some point. But, certain age groups are at a higher risk of the lifestyle creep namely young adults in their mid-20s and early-30s, and people who are nearing 65 or the age of retirement, Fire the Family revealed.
For young adults, it is the high point in their lives when they are making the most money. They are also beginning to experience freedom for the first time. For retirees, they opt to keep up with the same lifestyle instead of downsizing. When the kids go off to college or start families, retirees go on vacations and their spending goes uphill.
Lifestyle Creep Comes Slowly, Harder to Shake Off
As income increases, so does spending. Yet, it is more difficult to downgrade your lifestyle than controlling your spending. When the unexpected happens, say a job loss or a pandemic lockdown, many families go into shock to bring their household budget down.
It is even more difficult to downgrade your lifestyle when you have kids. It becomes doubly hard when your children get used to luxuries like new gadgets for birthdays, eating out frequently, and having extended vacations. Parents end up working longer to earn more just to keep up with this lifestyle.
How Do You Know Your Family is Experiencing the Lifestyle Creep?
Here are some telltale signs that you need to rethink your spending habits. Once something becomes a habit, it can be harder to shake off, especially in a household with children.
- More spending on take-out and eating out
- Car loans or upgrading to a better car
- Expensive new hobbies
- Owning more shoes and clothes than you need-more costly, too!
- Having bigger flat-screen TVs and flashier appliances
- Name-brand kids' clothes and diapers
- More credit card debt
- More rooms in the house than the number of people in the family
- Carwash memberships
- Outsourcing chores
- More frequent and longer vacations
- Buying a bigger house or moving into a bigger apartment
- Starbucks, lunch out, and other splurges become necessities
Tips to Control Lifestyle Creep for Your Family
- First point out the many forms of lifestyle creep in your family, and how it is affecting your family budget.
- Stick to a budget. Give every dollar a job.
- Clarify needs vs. wants. No, new shoes every paycheck is not a necessity. Neither is a new toy every time you go out on an errand.
- Stop or minimize spending on conveniences.
- Spend only 2.9% of your salary raise to celebrate.
- Try the 50/50 method. 50% of the raise goes to savings, 50% goes to guilt-free spending.
- Plan ahead what to do with wage increases.
- Give yourself an allowance.
- Adopt cheaper hobbies.
- Get rid or limit credit card usage.
- Make saving automatic.
- Delay gratification.
- Choose friends with similar financial goals.
Be wary of your spending habits. You may be starting routines and rituals that are too costly for your previous paycheck. A family that eats out every weekend at a fancy restaurant will struggle to break that habit, Economic Times revealed. It can be difficult to explain to your kids why you will not travel business class anymore or why you will take the train instead of a plane.
