Beware the Cost of “lifestyle Changes”
Perhaps you recently got a promotion (congratulations!), or paid off your debt (super congratulations!), or you are finally seeing a return on your investment. For some reason, you suddenly find yourself spending more money on daily luxuries. We’ve previously covered how many sources like to exaggerate the impact of small purchases like morning iced coffee on your long-term finances. At the same time, it’s all too easy to fall into the trap of spending more as we earn more, which can make it difficult to save money for the future.
The parallel increase in what you earn and what you spend can be explained by a concept known as lifestyle sprawl. And, given our ongoing fight against inflation , this is not the time to let all your petty excesses blow your budget to an unbelievable size. Here’s what you need to know about how expensive the lifestyle is and what you can do to avoid it.
What is a lifestyle (and how to deal with it)
The pursuit of a lifestyle is a model for spending more money as you earn more money, slowly but surely adjusting to a more luxurious new normal. And luxury is relative; For many, a lifestyle change is the difference between living paycheck to paycheck and knowing you can comfortably book DoorDash multiple nights a week. Unfortunately, even a small luxury can add up. And when dealing with staggering inflation that is out of your control, your best bet is to control any inflated lifestyle spending that you can control.
Make a budget and stick to it
The best budget is the one that works for you. A popular option to try out is the 50/20/30 method . Here’s how it breaks down, in broad strokes:
- 50% of your monthly expenses are spent on essentials. Your home, your transport, your food, etc.
- 20% of your monthly expenses go towards savings. You can also group your debt payments into this category, since paying off your debt will help you build up savings later.
- 30% of your monthly expenses go towards everything else. This may include gym memberships, travel, gifts, and meals.
Unfortunately, there is no single magic table. It may take some trial and error to find the one that suits your personal situation. Here’s our guide to getting started with a budget.
Become a more conscientious spender
Now that you’ve made a budget, it’s time to stick to it. One place to start is with your bank statement, checking to see if all the things you spend money on are really valuable to you (rather than some subscription service you forgot long ago ). You may be surprised to find out how many expenses you can eliminate because they were unintentional or were caused by stress.
A simple tip to avoid unnecessary purchases is to write down the things you want to buy before you buy them. When you read the items on this “shopping list”, you will be able to make a more informed decision about what you really need.
Save money in a rainy day fund
The main symptom of lifestyle creep is the inability to increase your reserve fund. If the amount you’re saving remains the same even after your income increases, chances are you’re spending that money on smaller lifestyle changes instead. Keep track of how much you are saving and make sure it grows with your income.
You are still allowed to heal yourself
Living beyond your means does not mean you have to lead a strict lifestyle. Allow yourself to indulge in things that make you happy from time to time, especially if those indulgences improve your overall relationship with money. As NPR explains , it’s important to be mindful of yourself. Ask yourself: “How do I expect this purchase to make me feel? What do I want it to make me feel? What feelings am I trying to avoid by buying it? It may look like a bust on a family vacation, but cut back on ordering takeout.
When you are confident that you only spend money on things you like and don’t spend money on things you don’t like, you will make better financial decisions.