You’ve probably experienced the ‘Lifestyle Creep’ more than once in your life already – after all, this dangerous phenomenon spares no one! If your lifestyle ‘creeps’ up over time, negating the positive impact that your increased income should ideally have on your net-worth, you’re a victim. Here are three simple ways in which you can buck the trend and avoid falling prey to this all too common malady.
Have a “Debt Free” life philosophy
Instead of always aiming to ‘live life king-size’, aim for a ‘debt free’ life instead. Financially free people know the importance of taking out loans to fund impulse purchases. It’s a lot better to delay your gratification and save up for the eventual purchase that you’d like to make using cash, than to buy it using a loan and end up on the hamster wheel of incurring debt followed by repaying debt.
Obviously, some loans (such as a car loan or a home loan) may in fact be unavoidable. Even for those, it must be your aim to maximize your down payments and use unexpected windfalls money in the first half of the loan tenor to make pre-payments and bring down your monthly burden, freeing up funds for monthly goal-based savings. Remember that excessive consumerism is nothing but you robbing your future self of your wealth creation potential. Sleep on your decision to make a high-value purchases – good sense might just kick in, come the morning light!
Start – and automatically step up – SIP’s
The seemingly simple act starting an appropriate set of mutual fund SIP’s (Systematic Investment Plans) towards your long-term Financial Goals can have a powerful impact in countering the lifestyle creep. Mapping your goals to your regular investments will keep you focused on your longer-term objectives, while SIP’s will help you steadily build wealth towards their eventual achievement.
But don’t be content with plain vanilla SIP’s. Most Asset Management Companies now allow you to issue a standing instruction to increase your monthly SIP amount once a year. This is a fantastic feature that allows you to start small and build up your savings in a disciplined, consistent manner that’s in line with the expected increase in your monthly surplus. Increasing your savings by seemingly small amounts each year can have a colossal impact on your wealth creation. Here’s an example: Rs. 10,000 per month saved for your new born child’s college education in a SIP that provides a projected growth of 12% CAGR will grow to Rs. 75 Lacs in 18 years. However, if you were to increase your monthly SIP amount by just 10% each year, it would grow to 1.45 Crores – a difference of 88%!
Tune out of Instagram!
Yes, it’s a fact that overindulgence in Social Media exacerbates the lifestyle creep problem. It’s natural to want to project an image of opulence and success in front of your peer group; especially when pictures of your friend’s new car or vacation pop up in your news feed. Inherently, we’re all competitive beings. However, the highly detrimental habit of wanting to ‘keep up with the Joneses’ can damage your finances and your mental peace more ways that you can imagine. If you’re really unlucky, it can transgress the realm of causing mild financial damage and actually lead to your financial ruin. Be forewarned!
It would be a wise move to use social media only occasionally rather than making it an obsession. Cultivate the habit of remaining content with what you’ve been given, while working furiously and determinedly to improve your current position. Avoid making a big deal of your own lifestyle purchases on your social media pages too; you may just be indirectly contributing to somebody else’s lifestyle creep in the process!