Uncensored Money Season Three: Lifestyle Creep - What Is It and How to Avoid It

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 08/06/2022

Show Notes

There has been a lot of talk in the news recently about inflation rates, lifestyle creep, interest rates and the cost of living. So over the next few episodes, Mel and Lawsie will unpack these topics and share practical tips you can implement straight away. 

In this episode, Mel and Lawsie discuss lifestyle creep, what it is and how it affects you. Then they share 5 practical ways to avoid lifestyle creep from sabotaging your finances. 

If you know you need more help with your finances make sure you join the waitlist for the next round of the My Financial Adulting Plan. 

If you're not already, come play over at insta at MelBrowne.Money and make sure you are signed up to Mel's Money Musings and Monday Money Moments (yep, we love us some alliteration) for more tips, tricks and ideas on how to best work with your money.

Finally, if you love this episode please make sure you subscribe and leave us a review.

Transcript

Mel: There's been a lot of talk in the news about inflation rates, lifestyle creep, interest rates, and the cost of living. And so what we wanted to do is address that so that you are not succumbing to click bait headlines, and you're also not having to make sense of it for yourself. So we want to unpack what they mean, not just theoretically, but practically for you and your finances. Um, we're going to start today with lifestyle.
But I put a Q&A up in my Insta this week, where I just asked you for, okay, what do you wanna know? So if Lawsie and I are gonna unpack that and we'll either make sure we are covering it and anything else that we don't, all of those many questions, which I think they're about 50 Lawsie, uh, different things that people said, hey, I don't know this, or I don't understand this. Or how does this relate to me? Anything that we don't get to will do a special Q&A episode where we dress just simply address those specific things. So lifestyle creep, what is it? And how does it affect you? So essentially it's when your salary lifts or your earnings lift, or let's be honest, they don't lift, but you start to lift your spending and instead of you being okay with baby Freddo frogs, You now have to have Haighs and nothing else will do.

Lawsie: There's no such thing as a baby Freddo frog. A Freddo frog is a Freddo frog.

Mel: Oh, there is. I've got a packet of them cause I bought them recently for real. There's just Freddo Frogs. There's like teeny tiny. There's giant. So there's two different sizes.

Lawsie: I stand corrected then. And here I am bagging you out. I learning the big issues today. Very good
Mel: The big issues, but lifestyle creep is where you lift your spending to the point where you just think, I don't know how I could possibly have gone back and lived that way. I hear it all the time with things like, oh, yes, there's no way you could have less than one TV or every child has to have their own room, or they absolutely have to go to this private school, or I must drive this particular car or even I was talking to a stylist the other day. And she said that her daughter, who's not a teenager, knew who Gucci was. And I'm sorry at age eight, I did not know what Gucci was. So there is this lifestyle creep where it's I liken it to being a pot boiling water, where our expectations of what we should be able to afford at our and stage lifts so we wanna address that today, cause this is an absolute saboteur of your finances. So before we get into inflation, before we get into interest rates and cost of living, I wanna address this cause I just feel like it's not being spoken about enough. Lawsie, you would see it like in your own life or in clients that we've worked with or friends even.

Lawsie: Look, I think we're all guilty. Guilty sounds a bit harsh, but I think we're all prone to having lifestyle creep.

Mel: Yeah.

Lawsie: And if I was to look at myself and, you know, I guess it depends how far you go back to, if I look at how I live now to how I lived when I first moved outta home, chalk and cheese, but also, so is your income. So I go, sure, I absolutely spend more money on things now. Like groceries, clothes cars, like you name it, I spend more on it. But it's interesting. Wrapped up in that I guess is yes, there's definitely lifestyle creep. And I reckon my car is the best example. You know, like I had a little, $2,000 Daewoo Lanos. It was three door. Even had a little spoiler. It was the bomb. I was gonna say a wing. It was fully sick. I was going to say a wing, but I'm like, it definitely wasn't a wing. It was a spoiler. Um, with the, you know, clear coat falling off said spoiler, like it was mint. Beautiful. But, you know, like it still, it did what the car was supposed to do. It got me from A to B and now like my husband and I were talking about this only a few weeks ago. And as I hit the button to have my leather seats warm up because, you know, that's the type of style I'd like now. And I was like, I never wanna go back to a car that if I'm buying a car, I wanted to always have, and this sounds like first world problems, but heated leather seats and preferably a sunroof, that’s my minimum standard, which is a far cry from...

Mel: $2,000,

Lawsie: $2,000 Daewoo Lanos

Mel: And you just described lifestyle creep.

Lawsie: Oh yeah, it is. It sums it up in one example because the car is still both. Well, I mean, I don't know that Daewoo Lanos is still gonna be around at this point in time. But in its day, it still was doing exactly what my current car does get me from A to B. Didn't have the heated seats, whatever, but it still did its function. Yet now I'm like, oh hell no, I wouldn't be, I don't wanna get back in that $2,000 day Daewoo Lanos. I want my heated leather seats and sunroof please.

Mel: And I guess, oh my God, I love you started with that example. But I think you've just described lifestyle creep so perfectly, but also why we're not saying that it's it's wrong because..

Lawsie: Oh, definitely not..

Mel: Yeah. It happens to us all.

Lawsie: Leather heated seats are amazing.

Mel: It's okay. But it's problematic if we allow lifestyle creep a) to permeate every part of our lifestyle b) for it to be something where it's keeping up with the Joneses, just cause we think we should have that and we can't afford it and c) where it is robbing us of savings and investing and everything. So I think that is where the difference is cause I bet you have got many…. Well, I know you too well. You've got so many examples in your life where you don't need the heated leather seats.

Lawsie: Oh hell no, no. Definitely not like there are so many things. And I think just as an interesting point, or almost like as a side note to lifestyle creep as well is it's also being aware that sometimes you're gonna choose to pay more for things, and it's not so much lifestyle creep as it is a reflection of education, your own values, your own ethics and all of that stuff too. Cause I could also look at it and go, I spend more on clothes now for example, than I did back when I left home or even 10 years ago. And let's go outdoor gear because as I sit here, not that everyone can see it in my outdoor gear cause it's cold. I value that. Yeah. But I could go to, I don't know, I think Aldi does like snow sales or something, you know, or outdoor gear sales and I could absolutely buy some thermals and a thick jacket and whatever else there. Or I can go to Patagonia and I can buy the same thing with a much bigger price tag.

Mel: Yeah.

Lawsie: And for me personally, it's not so much a reflection of my income, but it's a thing where I go, but I'm gonna choose to go to Patagonia cause as a company, I really value how they make their clothes, where materials are coming from. You know, all of that stuff, you know, they're a clothing business that is using that to make money to make environmental change. Like it is very different to what Aldi is doing. And again, I, now that I'm more aware of that even if, regardless of my income, I would still choose to do Patagonia than I would the Aldi snow gear sale. So I think that is an interesting thing for people to take into account, but you can't, I shouldn't say you can't, you shouldn't up your spending to your point to around the lifestyle group and go, oh, I'm gonna, now that I know all of this, that I'm gonna have the best of everything in all aspects of my life. Yeah. Because then you are still gonna go backwards. So if you used to buy, I don't know, 10 things that are fast fashion. And if you're still then wanting to buy 10 designer things every month, like that's lifestyle creep. Yeah.

Mel: It's I have to be going, I have to be seen to be travelling overseas now that everyone's travelling. You know, I've got a friend that is this I need to go to Greece in winter, not just because I enjoy it, but also I need that to have that on my Instagram feed so people can see that I am successful like that. And that's where I think lifestyle creep, as you said, it's understanding the value behind why you are doing it. If you are spending to keep up with those around you or for what it says about you, that's where it needs to be questioned. And I see that happening a lot in the car people drive, where they live, where they send kids to school, the clothes they outfit them with, cause they think if I look and act a particular way and if I present this front therefore people will think I'm successful. Yet what we know from working with people is that absolutely often that's the thief of joy. And it's about actually looking after yourself long term and not be striving so desperately to keep up. But the same. So I was on $12,000 when I first joined the world of work. Oh. So, so much money! But we couldn't afford things, I had a mortgage. I couldn't afford to eat well, so I would eat rice. I would eat the tinned stuff, but there was a lot of rice and there was a lot of white bread and there was a lot of chicken and even, and sausage. Like there was no steak. There was no eating out. There was not any of that. Whereas now I value organic food and I, I value vegetables and making sure that the food that I put into my body, I know where it's come from. So I value that over eating out or even over travel. So it's to Lawsie's point, putting value on what you're spending, rather than thinking, I work hard, look, everyone else around me is doing it so therefore I should be doing it. Yeah. And it's interesting, you know, we think that lifestyle creep happens because our pay goes up therefore our spending goes up and definitely that's a big part of it. And we are gonna talk about how you can, stop that happening today. But it also goes up simply because how we see other people spend and there was an incredible research piece done by the Reserve Bank of Philadelphia around Canadian data that came out around lotto, winners and bankruptcy, you know, I'm a nerd for some stats.

Lawsie: Mm-hmm .

Mel: So what happened is that the researchers discovered that whenever there was a lottery win in a neighbourhood and the win was around $150,000, they found that bankruptcy rates went up and financial distress went up, not from the lotto winner but from the people that lived nearby. And the reason they were in financial distress and they were going bankrupt was conspicuous consumption and speculative investments because they felt like they needed to keep up. And that 150 grand was kind of just enough that they went, oh, I deserve that too. Or I work hard, I could also have that. I don't wanna be left behind. And I look at that example as lifestyle creep in like in the perfect research piece. But that's where you don't even need the pay rise to suffer from lifestyle creep. You could be affected how your peers spending. You could be affected by someone on social media, who you've met once they're spending. You could be affected by people on social media who are being gifted the stuff they're posting, and you're trying to keep up with them. And that's where it's really important not go into debt, to understand why we have lifestyle creep and to figure out the reasons behind why we're spending and behind why we feel like we need to keep up. And it's a very human emotion. You know, that keeping up with the Joneses was based on a 1930s cartoon. This is not a recent phenomenon. No, but it's been, but I think it's in our faces now more than ever. And we have access to credit, which they didn't have then, more than ever. So you can really keep up for a period of time, but you're gonna end up in so much debt and pain because of it. And as I said, at the beginning, it's gonna be the thief of your finances. So Lawsie what are some ways that we can avoid lifestyle creep? We've come up with five practical things that we think you can do in order to avoid lifestyle creep.

Lawsie: So, yeah. Number one. So the first one is if you are in a position to, and you have received a pay rise, be proactive with it. Like you generally know you're gonna get that pay rise before it hits your bank account and set yourself up for success where you, you might decide of that pay rise, I'm gonna keep X amount or 10% or whatever it is that you wanna do to go, you know what? I am gonna allow my lifestyle to creep by that 10%.

Mel: Mm-hmm

Lawsie: I'm going to enjoy this. I've worked hard for. I'm getting this pay rise so I'm going to have that as my fun, as my travel, whatever you wanna do. But then with that remaining 90%, make sure that you've got something set up so it goes into a separate account away from where you are normally spending. So that way it can be going towards savings or investing goals or whatever else that you are wanting to achieve financially. And it's not just sitting there as extra few dollars that are sitting in your bank account that you are tempted to spend because let's be honest, most of us, if there's money in that account and you suddenly go, oh, I really like those shoes, or I really like that outfit or heck I am going to that really nice restaurant and I'm buying extra drinks tonight, it's there. It's tempting you. So if you know that you are getting a pay rise or when you do get one it's yeah, our recommendation is work out what you're gonna do with it. Don't just leave it sitting in there because you will undoubtedly lift your spending to match whatever is in your bank account. So be proactive and siphon it off somewhere.

Mel: Yeah. Hide it from yourself straight away. I remember when I got my very first paycheck and I went, oh my gosh, I'm just gonna take this and blow it. And then I'll start being smart from paycheck two. But of course it didn't go as far as I thought it would. So I think it was about three months of doing that, where I went, oh right, now maybe I should be serious. The number of people you and I have talked to, who said, you know what? I just wanna enjoy when I get a pay rise or when I get that ad, that new promotion or that new job, I'm gonna just enjoy a month's worth of spending, I'm gonna do all those things and buy all those things I've been putting off. How many times have we talked to them a year later and they've gone? Yeah. I never stopped that. I got into a pattern and I just got used to it

Lawsie: Yeah. And it was, it's exactly what we're talking about that lifestyle creep, that it becomes your minimum standard of living and it raises, and it's really hard then to pull that, bring it debt back down.

Mel: Yeah. So, uh, first one is if you get a pay rise, hide it from yourself. So figure out how much it's gonna be and then hide part or all of it. So you decide maybe it's half of it. Maybe it's 80%. Maybe it's a dollar amount.

Mel: The second one is to automate. So whether it's bills or investings or savings. So I like to say that the, the bank doesn't say, if you have a mortgage, you know what, just pay it. It's up to you when you feel like it. Yeah. You know, it's two grand a month, but you know, when you pay me, you choose a day. You wanna pay it on. I'd like to get it each month, but you know, I trust you. No, they, they direct debit from your account every single month on a particular day. Cause they know that if left to your own devices, you're probably not going to. You're going to put a whole lot of stuff before it, so act like the bank to you and automate your bills, automate your investing and automate your saving. And when something like this, when these pay rises and bonuses and unexpected monies come in, put that into your automation as well, so that you don't get used to the amount and that way as well, your lifestyle creep doesn't use up that beautiful savings that you wanted to put the money towards. It doesn't use up that investing and you are simply living to what's left. And that's part of how setting up those different bank accounts is part and automating is part of how you don't have lifestyle creep.

Lawsie: Yeah.

Lawsie: Number three. So number three is set long-term financial goals that you're actually excited by. And again, because if you've got something that you're working towards, then you're not going to be as tempted to just go, I'm just gonna go and blow all of my money, all of my pay rise or all of my dollars just on whatever it is. So whether that be because you want to save your first thousand dollars to buy your first investment in shares, ETFs, managed funds, whatever that you're wanting to save towards a house deposit, that you're wanting to save up to have, I don't know. 12 months off and go travelling around the globe. Like whatever it is, make sure that you've actually set those goals. Make sure that they've got a dollar amount attached to them. Make sure that they've got a timeframe and that gut feel, you actually get excited by them. Don't do them based on what you think someone else thinks she should be doing. Cause if you've got that stuff that you're genuinely by and if it is a goal that is genuine to you, then it's going to make you not go and blow all of your dollars. And your pay rise, because you're gonna be like, hell no, I'm working towards that thing. So of course, naturally it curbs your behaviour in the current moment.

Mel: Absolutely. And you're exactly right. It's your goals. So not the goals that you think you should have, not the goals that your friends and family want for you. Goals you are excited about. And if you don't know what they are, then go and figure that out. But if you don't have those long term goals, I think as well, it's really hard because you are then completely reliant on self-discipline and willpower and just doing what you think you should. And, you know, that's not enticing cause no, I think I should save 20%. Oh, how exciting. Versus having that thing that's on your vision board or a picture of it on your phone? I don't do vision boards. Lawsie just looked at me like, are you an idiot? We're not vision board people, but if you are go for it.

Lawsie: Plenty of people are

Mel: I tend to have it on my phone or I put it somewhere so that I see it. I have it on my computer. That way, I'm going to see it. I know you have, you might have pictures of travel as your screen saver as oh, that's the thing that I'm working towards. So yeah, yeah.

Lawsie: Have those prompts so you don't forget what they are.

Mel: Exactly. At number four is don't let your wants become needs.

Lawsie: And I'd just like to say heated leather seats are a need.

Mel: That's exactly right. It's I want you to be really careful of your language because language is everything. And if you catch yourself saying, oh my God, I just need that pair of shoes. Oh my God, I need this or I need that. I want you to reframe it as I'd really like that. And there's nothing wrong with wanting something. It's nothing wrong with liking something, but let's not mix up our wants for our needs. Our needs are housing, shelter, food, and by food, I'm not talking bougie dinners out or cocktails. I'm talking staples. So again, it's just being super careful of that. And I've got someone I can't even think who this was, uh, where they told their kids that and their kids actually parrot to the mum is that a need or a want? Yeah. and so clever. Cause she has to go. Damn

Lawsie: Yeah.

Mel: but if you've got little parrots in your car, ie. children tell them. Uh, if you've got friends, catch each other on language. In the same way that I've said before, do not call your business your baby. Don't use just to describe your business. Say to your friends, let's not use the word need in order to describe a want, um, and let's really catch ourselves. And  I'm all for doing it for fun. You know, with your heated seats, you know, I talk to my shoes like they're babies, but I am absolutely under no illusion that they're a want, not a need.

Lawsie: oh, absolutely.

Mel: But we hear it all the time where people will sit in front of us and go, no, they, they used to sit in front of us when we did that. No, I have to have this. This is a non-negotiable. I need this. And the need would be a dream house or the need would be my kids must go to this school or the need would be my spending is $200,000 a year and it cannot, I cannot see how it can be below that because they're all needs. And you and I used to go what's the actual f*ck. So, and in all of those examples, people had flipped wants for needs. Mistaken wants for needs. And that is where you gotta really do your work on your values, so that you understand, and those long term goals to understand, what do I prioritize? What do I value? What's important to me? And then what are my wants versus needs? Yeah, final, definitely one Lawsie, just to prove that we are not total killjoys.

Lawsie: And our final one, tip number five, is to actually treat yourselves.

Lawsie: Yeah. Sometimes. And that can be with things that you want. Exactly.

Mel: Yeah. Um

Lawsie: Because we're certainly, I mean, we enjoy nice things. And certainly, we're certainly not saying with any of this, that with every dollar that you get in a pay rise or with unexpected funds that you've received, that you are hardcore and you don't do anything because you're gonna have to allow extra money from that to cover your basic cost of living anyway.
But also so you need to be able to enjoy some of those things, but it's just, again, being conscious around the dollars or the amounts that you're putting towards those things and the frequency with which you are enjoying those things to make sure again, that yes, you're enjoying it now, but you don't want that to be at the total expense of future you. So it is, it's finding that fine line.

Mel: And I think just be really conscious of those ways that you are you're consciously gonna treat yourself. So my husband treats himself with his daily cappuccino and pastry. He loves them. He savours them. Uh, he hoovers them. I catch it on his clothing when he comes in the door but he loves it.

Lawsie: He's not sharing.

Mel: Definitely not. He was not sharing, but that's how he treats himself. And he genuinely sees it as a treat, but he doesn't buy shoes. He doesn't buy clothes. He doesn't buy, like, he's just not a material person, but he loves that daily coffee and pastry, like just loves it. And if someone was to say to him, oh, you know, if you want great finances, don't have a coffee every day. Like ridiculous. We are so not saying that, but we are saying just be super conscious and treat yourself mindfully. For me yeah, I treat myself either it's a rewards based in the business and then we choose things to treat ourselves with that, or it might simply be certainly as I hit peri menopause (and what a delight that was) it's a lymphatic massage regularly. And it's for me, it's really strange cause I see those sort of things as… I really struggle to spend the money on that. Like I'll get my hair blow dried every single week cause I have a ridiculous mane, but I really struggle with something like a massage. It just feels so indulgent and not okay. But because it's health related, I kind of force myself to do it. This sounds so first world problem ridiculous. But I think that is one of those things where it's learning to treat yourself when it's appropriate but without guilt. And I know we talked about this inside the My Financial Adulting Plan this week where not everyone went on to the 30 day detox. Some people actually needed to do a 30 day spend challenge cause some people, lifestyle creep for them is not an issue at all. In fact, when they get pay rises, they hoard cash. They don't even invest. They just hoard cash. And for you, it's actually about learning to treat yourself, knowing that lifestyle creep will never be an issue for you and actually enjoying today, as well as looking after your future self. For all the rest of you, it is about treating yourself consciously and not going overboard with that. And it doesn't have to be super expensive. Like, as I said, my husband has his daily coffee and daily pastry. Loves it. Um, it's not cheap. no, but that's his thing and that's his treat and I love that.

Lawsie: Very good. I like it, but I think it's, yeah, it's making sure that you've got that balance that I guess in summary of those points, that it's you just are conscious around dollars that are coming into your bank account, where you're choosing to put those funds, automating it so not having to think about it and, or be tempted to spend on wants rather than needs. And, but above all, also just making sure that you do enjoy now, cause we are not, we're not killjoys. We like to enjoy ourselves. So make sure that you strike that fine balance.

Mel: So just be aware, uh, lifestyle creep can absolutely be a thief for your finances. And yes, there is a rising cost of living, which we're gonna talk about in incoming weeks. Yes, there is inflation, which we're gonna talk about in the coming weeks and interest rate rises. But lifestyle creep is real and it's not to be mistaken for those things. And we wanna really bring that to your attention before we get into those other topics so that you can start to take practical steps and do something about your finances.

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