How to avoid lifestyle creep in your later years
26 Oct 2022
We all want to ‘live the dream’ and if you’ve planned your retirement well, you’re hopefully doing exactly that. But “lifestyle creep” can happen when you increase your discretionary spending in such small ways you don’t even notice you’re spending more. Until you do.
If you don’t take steps to halt the creep, it can end up costing your future plans dearly. If your spending is ramping up, take these steps to pull that creep back into line.
1. Know your lifestyle
We all have a dream of how we want to spend our lives, but whether we can afford the whole dream or only part of it is a matter of fact. Lifestyle creep tends to happen the most when we’re chasing a bigger dream than we can actually afford.
So, the first thing we need to do is be clear about what our lifestyle goals are. The realistic kind, not the ‘beachfront home, Lamborghini and a yacht’ kind. Be SMART about your goals – specific, measurable, achievable, relevant and time-based, with a special emphasis on the ‘achievable’ side of things.
When you focus on what’s actually achievable, you’ll most likely find that you need to adjust your lifestyle goals to better fit your available finances. That doesn’t mean giving up on all of your dreams. It just means adjusting them, or giving up some to focus on others. Perhaps you could afford to park that fancy car in the garage of your average suburban home?
2. Have a clear monthly or quarterly budget
If you’re going to afford the lifestyle you want for as long as you want it, you will need a budget. A budget gives you a very clear plan of what you can and can’t afford in any given month.
If you’re clever about it, your monthly budget will look quite different each month. Some months you might spoil yourself by eating out a lot, taking a weekend or two away or making upgrades to your home. Other months you’ll be extra-frugal in order to afford the more generous months.
It’s basically up to you how you budget each month, as long as you keep an eye on your cash flow. Using credit to ‘tide you over’ an indulgent month only makes sense if you can pay it off in full the month after.
3. Plan for large, unexpected expenses (and there are always large, unexpected expenses)
One of the biggest mistakes people make when creating a budget is assuming that ‘one off’ expenses are a rare occurrence. They’re not.
The hot water system will break down one month and a rare opportunity to attend an interstate event will happen the next. There is always something pulling away a reasonable sum of money in any given month.
So plan for it. Ensure you allocate a sum of money to an ‘unexpected expenses’ line each and every month. If for some reason nothing comes up in any given month, you can roll the sum over to the next month when two things will happen at once.
4. Give yourself some flex for indulgences (you're right, you do deserve a treat)
While we can plan for ‘big events’ in a month – like the holiday or meals out – sometimes it’s the little-and-often indulgences that break the budget. It’s a bit too easy to fritter away a few hundred dollars a month on ‘small’ things like takeaway coffee, parking when you should have caught the bus, an extra streaming subscription to watch a new show, buying a few books online, eating extra snacks… the list goes on. It’s little wonder that lifestyle creep is so insidious.
If you need to cut back on your spending, small indulgences are the first area you should look at. Cutting down on the number of ‘extras’ you allow yourself is a quick way to save yourself a surprising amount each month. But if you’re not ready to give up all your treats, make sure you budget for them instead. And yes, that probably means you’ll need to cut back somewhere else to accommodate them – remember, there’s only so much money to go around!
5. Make active choices
Watching every dollar isn't fun, but being mindful about when, where and why you spend your money makes sense. If you find your budget going sideways more months than not, it’s time to methodically track your expenses.
This is easy to do using your bank and credit statements at the end of each month. Categorise each of your expenses and compare them against your budget allocations. Then ask yourself whether your expenses are fair or not. It could be that your budget for essential areas like utilities, groceries or transport is unrealistic and you’ll need to adjust for that.
To do that, you’ll need to make some lifestyle changes to bring your essential spending down (eat less meat, turn off lights, keep only one car, etc), or cut right back on your ‘non-essentials’ allocations and spending. So take a second look at your ‘indulgences’ and learn to live with fewer treats. It’s helpful to remember that the real treats in life can actually be completely free – fresh air, family, friends and time to enjoy them all.
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