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Thursday, August 17, 2017

How not to let lifestyle guide your finances

Getting ahead in your career feels awesome and can come with many perks. Typically, one of them is an increased paycheck. If you haven’t ever heard of “lifestyle creep,” it is something you should pay close attention to. It is easy to find places to spend your money, and when you have more of it, you may be surprised at how quickly it can disappear if you aren’t careful.

When you get more money per month, it is not unusual to let things go a little, spend a little more than you used to, or make impulse buys under the assumption that you deserve it. The problem is that if you overestimate how far that extra income will go instead of planning ahead, the money could disappear pretty quickly, leaving you living outside your means.

The Millennial generation views finances differently than previous generations. They aren’t huge savers; they believe in YOLO (you only live once) and living life large. After all, you never know when the ride here on earth is going to end. Unfortunately, what they don’t consider is in the same respect, if you live here a long time then you will have many years to support yourself.

According to a credit union Winnipeg financial institution, those entering the workforce are in jeopardy of being one of the first generations to pay into the social security system and never get anything out of it. Not only is this unfair, but it is also making an entire generation vulnerable to poverty as they age, which is not something that many 20-somethings think about. If you are working your way up the corporate ladder, it is important to remember to watch out, so your lifestyle doesn’t expand more than your income and leave you cash-poor.

Live within your original means

Lifestyle inflation is when you spend money in proportion to what you make. When you get a raise, you raise your standard of living to accommodate it. For example, if you get more money at work, you go out and financea car or you find a bigger apartment. It isn’t that you don’t deserve rewards for your time and effort. It just might be that things were just fine before you had the additional income, so don’t try to find more ways to spend it once you do have it.

The person who will end up with the greatest wealth is the one who gets more money and stays at the same lifestyle level and begins to save instead of finding things to spend their money on. The extra income that you put into your savings or invest will make a huge difference on your financial security in the future. Your bigger apartment likely won’t.

Have a safety net

To stay out of the lifestyle creep it is important to give your money, a purpose. That means to plan where your finances are going. It is easy to run the debit card and cross your fingers, but if you take the time to designate where to put your money and prioritize what is important, you can take money out of your budget automatically. Then, you are going to have a safety net if something should fail, and you won’t be tempted to spend outside of your means or unwittingly put yourself into a financial bind.

It is also very important to have a rainy-day fund. YOLO is true, but it is also true that you can’t predict what is going to happen. That means that accidents or unanticipated expenses will always be there. If you don’t have some savings to cover them, you are going to be financing them. That is a recipe for disaster. You should included in your financial plan, have a safety net for those things that you can’t see coming.

Trick yourself

Everyone tells themselves little lies to help. The best financial thing you can do is tell yourself a lie about what you have to spend. The best way to do that is to have money taken out of your paycheck before you even have your hands on it, by investing in a retirement account or sending it directly to savings. That way you never have the opportunity to make excuses or find ways to spend it. In your mind, it should just not exist.

Lifestyle creep is something that everyone is prone to. When someone has more money, it is easy to find ways to spend it. Instead, make a plan to save, and you will find that your financial future will be much better and your stress much lower.