As you progress through your career and your income increases, it could make it easier to work towards your financial goals and improve your lifestyle. You could use these extra funds to contribute to your retirement savings, pay off debts, or save for luxuries such as holidays.
Yet, you may find it more difficult to reach these goals if you fall victim to “lifestyle creep”. This is when the cost of your lifestyle increases alongside your income.
For example, before you sign your first professional rugby contract and your earnings are lower, you might order a £15 takeaway from the local pizza place as a Friday night treat.
Then, as you progress in your career and your earnings increase, you may start going out to eat instead. You could easily spend £50 on some food and a few drinks.
As you approach the end of your playing days and your income rises even further, you might start frequenting fine dining restaurants instead of the places you used to eat, because you can afford it now. Suddenly, your Friday night meal costs you £200.
This kind of lifestyle creep may be present in many areas of your budget. For example, you might do your grocery shopping at different places, purchase a more expensive car, or upgrade to first class when you travel.
Enjoying a better quality of life when your income rises is completely normal and understandable. After all, you want to enjoy the wealth you earn.
But, if left unchecked, lifestyle creep could mean that you do not have enough surplus income to save and invest for the future.
You may also struggle to maintain your lifestyle if your income suddenly falls. This might affect you when you retire from your playing career.
Fortunately, if you can learn to spot lifestyle creep and avoid it, you may find it easier to reach your long-term financial goals.
Read on to learn some of the tell-tale signs of lifestyle creep, and then some powerful ways to avoid it.
You might spend more on luxuries due to lifestyle creep
When you sign a new contract and your wages increase, you might be more inclined to spend money on certain luxuries.
For instance, you might buy more expensive clothes and shoes than you would have done in the past. You may choose a newer car if you can afford it too.
Spending more money on socialising is also a common sign of lifestyle creep. While it is important that you enjoy time with friends and family, you might notice that you are dining out more often or choosing more expensive places.
Your travel preferences often change too. For example, you may book longer trips or stay in a five-star hotel instead of a three-star.
It can be easy to increase your spending on luxuries like this as a professional rugby player because many of your teammates could also be living a more expensive lifestyle.
It is absolutely fine to enjoy your hard-earned wealth as you progress in your career, but it is important to be careful.
As you saw above with the examples of eating in different restaurants as your career progresses, these additional costs can quickly add up.
Unfortunately, this could mean that, even though your wages are higher, the amount of surplus income you have to save for your future does not increase.
Your debt may increase along with your income
People sometimes take on more debt if they have increased income to make the repayments. For example, you may purchase a larger home if you can afford a bigger mortgage. You might also buy an expensive car on finance instead of opting for something more affordable.
However, this means that a higher percentage of your income goes towards debt repayments, and you do not necessarily see the benefits of an earnings increase.
Additionally, if you become accustomed to a certain lifestyle and your wages decrease for any reason, you may be more likely to use credit cards or loans to maintain that lifestyle.
Conversely, if you put additional wealth into savings, you may be less reliant on borrowing to make purchases. This could mean that you have a more beneficial relationship with debt in the future.
3 powerful ways to potentially avoid lifestyle creep
Lifestyle creep is so named because it creeps up on you gradually, and you may not notice that your spending has risen with your earnings. Fortunately, there are some ways to potentially avoid lifestyle creep.
- Create a budget
Having a detailed budget that tracks all your spending is a simple way to manage lifestyle creep. It could make it easier to notice if your spending in a certain area goes up when your earnings increase.
You can also see whether a specific expense makes up a disproportionate percentage of your outgoings.
Whenever your earnings rise, you can adjust your budget accordingly and make informed decisions about how to use these additional funds.
By managing your spending in this way, you may be able to enjoy your increased income while also saving and investing for the future.
- Set clear financial goals
Having clear goals to aim for may encourage you to think more carefully about how you use additional income.
For example, you might want to set aside wealth to start a business or fund your lifestyle when your playing career ends. Having goals like this means you may be encouraged to save and invest extra earnings rather than increasing your general lifestyle spending.
As a result, setting clear financial goals and tracking your progress is one of the most effective ways to make more measured decisions about your wealth and avoid lifestyle creep.
- “Pay yourself” first
One of the biggest problems caused by lifestyle creep is that you do not have enough surplus wealth to contribute to savings and investments for the future.
Fortunately, you may be able to get around this if you “pay yourself” first. This means putting wealth into your savings, investments, and pensions right away, before spending on anything else. You can then budget with whatever is left over.
This means you can reward yourself and enjoy spending money, safe in the knowledge that you are working towards your long-term goals and your future is secure.
Get in touch
If you want to create a financial plan to help you prevent lifestyle creep, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
