Lifestyle creep sets in slowly, is hard to discard: 8-point checklist to keep a check on your spending

My friend loved fresh flowers. When we were young girls, foraging for flowers in the wild was a favourite pastime. She brought them back to our hostel room and created beautiful arrangements. Now she is a super-rich wife of a successful businessman. By her own account, she spends a huge amount of money on flowers, every other day. Is she overindulging or simply enjoying what she loves?

Spending habits are like that. We can convince ourselves that we deserve the expense, or that we can immensely afford it, and learn to not be guilty about it. Personal finance has a term for such indulgence. Lifestyle creep. The easy ability of expenses to increase with income. It can move up slowly and make it difficult to shed. The creep up is the stealth with which we allow these expenses to grow.

As incomes move up, we can see lifestyle changes happening somewhat naturally. Most households make better food choices. Increased grocery bills from generous consumption of good food is normal. Healthier populations is a normal outcome of better and stable incomes. Households upgrade their clothes, homes, furniture and fixtures, cars, electronics and lifestyle creep is upon us.

The need to belong to a certain social strata creates pressures that households find tough to stave off. Especially while living in a community with houses too close for comfort. Neighbours then set the bar for social markers and expenses. Many households find themselves living paycheck to paycheck because they have purchased a car they can’t afford and have filled their house with stuff that display their status to neighbours.

Living a simple life and fighting lifestyle creep may not always be a virtue. The line between being simple and being stingy is thin. Households are unable to make that decision confidently, unless they are able to truly appreciate and feel proud of their decision to lead a simple life. Severely cutting back on expenses can also be a sign of abundant risk aversion and caution.

How can a household draw a checklist and be sure things are in control?

First, make it a practice to define an expense as a percentage of regular income. That enables understanding whether such an expense makes a real dent on the household or not. My flower-loving friend says that her fresh flowers don’t cost more than 1% of her family’s income and she doesn’t think much about it. For a household that is still repaying the home loan, buying a new car that will take the EMI over 50% of the income is a significant decision.

Second, be careful what routines and rituals you create. These are tough to break. A family that eats out at an expensive restaurant every weekend will struggle to break the habit. Make sure your lifestyle expenses offer a mix of experiences, rather than a defined high-cost choice. Every holiday need not be abroad. Every travel need not be business class. The problem with routines is that breaking them will seem like a downgrade.

Third, keep room for returning to something simpler. Ensure other elements of such experiences are enjoyed. A long trip by train to simply enjoy the sights and sounds and relive childhood memories will be seen as punishing, waste of time, and too pedestrian if your family has gotten accustomed to flying or driving everywhere. Make sure that you don’t define what the family will do by strictly expensive choices.

Fourth, take care to see what the default choices are turning out to be. When you buy electronics or cars, if you are always looking for what is new and latest, you will upgrade too often. If you focus on functionalities, you may be able to see that upgrades don’t make too much of a difference. Discuss as a family what your requirements from a large ticket expense are. Instead of making it all about the cost, turn it into a feature-wise analysis.

Fifth, make sure you are not falling into the trap of instant gratification. While shopping for clothes and accessories, ask yourself if you want to come back to your online shopping cart after a day and review the items again. It is very likely you will drop off a few items. Every shopper knows that little things will add up. Don’t make it a habit to browse and order too frequently, making it a pastime activity to fight boredom. Emotional buying creeps up too soon.

Sixth, find out if your lifestyle involves activity that won’t involve spending money. Do you spend time singing songs and practising music? Do you step out to garden in your backyard and grow some plants? Do you go out to trek in the hills and enjoy the fresh air? Does sitting at the beach and watching the setting sun make you happy? Do you spend time with friends laughing about memories and stories? If your lifestyle offers nothing without opening your purse up, you might have to pause and think. There are real joys that don’t cost much.

Seventh, exercise caution about the company you keep. See what binds you with the friends you have. If a common interest holds a relationship together, you will find meaning as the relationship matures. Instead if every meet is an exercise in status comparison, you build needless social pressure in trying to keep up with them. If setting out to meet your social group gets you worrying about what you wear, the age of your gadgets and the make of your car, you are in wrong company that measures your worth based on what you have rather than on who you are.

Eighth, tell yourself that higher and stable income and comfort for yourself empowers you to make a difference to other lives. If your spends are always about you, you run the risk of becoming too self-absorbed. The true joys of living are when you include others in your life and keep them in your thoughts and actions. Small acts of kindness and empathy to the others around you will keep you grounded. Give, and see how much it changes you as a person.

Lifestyle creep is a silent killer when we let optional, discretionary, and avoidable expenses to become compulsory, mandatory and unavoidable. Learn to keep expenses in their place.

(The writer is Chairperson, Centre for Investment Education and Learning)