Pay Increase and Lifestyle Creep
November 16th was a very significant day for a lot of public servants in PNG (myself included) as we received our backdate and a 3% increase to our salaries. While it is tempting to want to spend all this extra money (believe me, the urge is there), it made me think about the effect of lifestyle creep on our finances and our future. Let’s talk about it.
Lifestyle creep
Lifestyle creep is that feeling of wanting to upgrade your lifestyle by increasing your unnecessary spending because of an increase in pay. When this happens, people will often use the excuse of ”I deserve it because I’ve been working so hard”. But what happens is that we end up spending more money on unnecessary things, inflating our lifestyle and indirectly telling ourselves that we need these things to make ourselves happy. We end up increasing our standard of living that makes it more difficult to sustain in the long run if we end up losing our job or if an emergency comes up.
But why does this happen? Because of basic human instincts; we make more money so that makes us think we are allowed to spend more money. If we continue thinking like this, they we don’t end up with any actual benefit in the long run, since we are not saving any money. This is a societal trap that we all need to avoid as it is very easy to become sucked into. We need to change our mentality to avoid driving ourselves into debt.
While lifestyle creep is eventually inevitable, you can minimize the effect of how much you feel the need to upgrade your life so that you can still be happy enjoying your money and not lead yourself into debt.
Here are my three tips to help avoid lifestyle creep:
Ask yourself this question: What has anything else changed in the last 24 hours? Apart from your pay, nothing else, right? In the last 24 hours, your bills didn’t increase, you (probably) didn’t add any new members to your household, your expenses haven’t increased. You are still the same. The only change is your pay. So there is no need to upgrade your lifestyle overnight because nothing else has changed.
Your ”pay increase” and backdate should ideally be put away into savings. If you do this, then you are way ahead of 80% people. Don’t feel the need to blow all that hard work that you deserve on unnecessary expenses. Remember, nothing has changed apart from your pay. However, we dont’t always act ideally so an easier and more practical approach would be to put 10% of your income into savings. C’mon, It’s only 10%.. It’s not a lot of money (seriously, you just got extra money) and it’s not hard. If you save only 10% and you decide to spend the other 90% of your money, you’re still far ahead of about 90% people, which is saying a lot.
Realize that having K0 is worth much more than being in debt. If you have no money, it sucks but at least you don’t owe money to anyone. If you are in debt, by definition, you owe someone money. Being in debt is much worse because now you have the external pressure and burden to pay back someone else. More burden equals more stress. So, if you are in debt, my advice is to focus all your efforts into paying off your debt ASAP to at least reach zero balance. Then, once you do that, focus on saving 10% of your income to put towards your emergency fund, which is ideally 3-6 months worth of expenses saved. Once you build your emergency fund, then you will have less financial stress knowing that if any major life event occurs, like you losing your job or a family member dying, you have the funds to comfortably deal with it instead of borrowing money and scrambling to find money. You’ll be able to spend money more comfortably and really start to enjoy the hard-earned money.
I hope this article was beneficial and has helped you become a little more money-savvy. I hope you have an awesome day!
