What’s The Problem?
There’s a common issue I come across. People’s spending tends to expand into their available income. I’ve seen people with very healthy incomes struggle to make ends meet at the end of the month. Some refer to this as ‘lifestyle creep’.
Things Aren’t Obvious
It can be more difficult than you think to spot lifestyle creep. It might be as simple as choosing a more expensive bottle of wine when you’re at the supermarket or stopping by a café in the morning to pick up a latte.
It could include larger expenses too. Perhaps you start to upgrade your phone every year instead of every three years, or eating out becomes a regular habit rather than a treat.
Over time, lifestyle creep can lead to former luxuries becoming your new essentials. If you don’t keep an eye on your budget, the amount you spend could rise much faster than you expect.
According to a survey carried out by Aqua, 89% of Brits say they exceed their social budgets every month. The average person is spending around £61 more on social activities than they plan for.
When you consider how lifestyle creep could affect other areas of your spending, it’s easy to see how it could lead to your regular outgoings rising by far more than you originally thought.
Stealth Spending
On the surface, lifestyle creep might seem like it’ll have little impact. After all, the £3.50 you might spend on a coffee at Starbucks. Yet, do this three times a week, and you’ve added almost £550 to your expenses over a year.
Increased spending means you need a higher income. Once you’ve established a habit of spending more, it can be difficult to go back to your original budget. Lifestyle creep could mean you don’t save as much for your retirement or spend more than you planned to.
As a result, you might have to re-think your pensions and / or investment portfolio because of miscalculations in your desired retirement income. Not a great situation to be in, I’m sure you’d agree.
Keep What You’ve Got
According to a 2022 survey published in FTAdviser, the top retirement aspiration among those nearing the milestone is to maintain their standard of living.
If your regular expenses have crept up during your working life, or indeed in the early years of retirement your pensions and other money might need to give you a bigger income than you’ve previously calculated.
As a result, some retirees could find they face an income shortfall in retirement or risk using their pension too quickly and running out of money later in life. A financial plan could help you strike a balance between enjoying today and securing your future but I suppose I’m bound to say that!
Fancy A Coffee?
From planning a fancy holiday to days out with your family, there are lots of ways you might plan to spend your money. Making these expenses part of your overall financial plan could help you assess what’s right for you.
It may be worth considering what expenses add joy to your life when you’re prioritising them. For example, a cup of coffee at the park might become a habit that doesn’t improve your mood or outlook. On the other hand, regularly buying a coffee as you catch up with friends could be an important part of your social routine that you look forward to.
Creating a financial plan and being aware of lifestyle creep is about more than cutting back your expenses. It’s about being intentional with how you use your money now and in the future.
And That’s It For Today!
I know what I’ve written here seems totally obvious but you’ll be surprised! As ever, if you need to speak to me, please get in touch.
Speak soon!...