Lifestyle creep is probably the most dangerous disease that plagues the modern professional.

It is the concept that as we earn more, we spend more, and get used to higher levels of luxury and convenience that becomes our new normal.

Lifestyle creep usually occurs when we get an increase or bonus, or after we have paid off debt and have more disposable income. We find places to channel our extra money into e.g. a fancier car, bigger home, new hobbies or more convenience luxuries such as a daily maid service.

The danger in this, lies with the fact that our retirement savings and rainy-day savings get left behind.

We often increase our lifestyle as we channel more of our disposable income into luxuries but forget to increase our emergency savings and retirement savings. This means that at retirement, we will not have enough saved up to maintain the lifestyle we are accustomed to.

Our retirement plans were based on our previous lifestyle and not adjusted to accommodate our new upgraded lifestyle. This will lead to
•    Downgrading retirement lifestyle
•    Downsizing homes and vehicles
•    Living on less income
•    Not being able to go on all those planned vacations
•    Running out of money during retirement

The danger of lifestyle creep is that we cannot see it happen immediately. It is normally something that creeps in over several years. Eventually we find ourselves with a budget that is too high and no disposable income e.g. when we get an increase giving us £10 000 more per year to spend, we buy a new car that is worth £25 000. This means we are in £15000 more debt than before our increase.

If this is such a danger, why do we fall into the trap? 

Because we don’t realise it is happening. All the little extras don’t seem like a lot, but added up, make a big difference. 

It is vital that we monitor our budget on a regular basis to ensure we are not eating into our disposable income and getting into debt, furthermore, one of the first things we need to do after an increase, is consult with our financial adviser to ensure our retirement savings is keeping up with our lifestyle expectations. 

Before spending our money as quickly as we earn it, one of the first things to do after an increase is to allocate more to our retirement contributions and savings first.

Chat to your advisor about balancing your budget whenever your income changes. [email protected]

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere Acuma advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.