As you move up the career ladder, your income will also go up. This could either allow you to save more money, or tempt you to buy more things and incur more expenses. This is what’s known as lifestyle creep. In other words, it’s the urge to spend more money as you earn more.
Lifestyle creep is never a good thing. If you’re not careful, you may end up drowning in debt. Instead of having money to spare for emergencies, you may have to resort to personal loans from instant money lenders.
Pay attention to the three tips below to avoid the damaging effects of lifestyle creep.
Always live below your means
The best solution to avoid financial trouble is not to spend all your money. Your expenses must always be less than your total income. That way, you will always have some money to spare.
The spare money can go towards your emergency fund or savings. When you suddenly need some extra cash, you have it. No need to get into debt.
Prioritise assets over liabilities
Each time your income increases, purchase assets instead of liabilities. Assets grow in value or help you earn money over time. These include shares of companies, investment funds, and real estate. Each time you buy an asset, it will eventually pay for itself and more.
Liabilities, on the other hand, are the opposite. They drain money from your bank account instead of adding money to it. Things like expensive gadgets, fancy cars, and the like are examples of liabilities. They may make you look good, but they do not earn any money. They even drain your money through expensive monthly payments or credit card interest.
Invest any extra money instead of upgrading your lifestyle
In keeping with the previous principle, aim to invest in assets instead of using your extra money to buy more expensive stuff. You can live without that fancy car or weekly trips to an expensive resort anyway. Also, you don’t have to move to a more upscale neighbourhood right away just because you can afford it.
The more investments you make in profitable assets, the wealthier you can become. Your lifestyle may be simple, but hey, you have lots of money in the bank! Seeing those high numbers in your bank account is a lot better. Plus, you can enjoy them later on, and you’ll have lots of cash to spare in case financial troubles hit.
However, make sure you make sound investments. Not all of them are legit; investment scams are everywhere. Aside from that, there are also investments that To be safe, keep in mind these two rules of thumb in investing:
- Only invest an amount of money you can afford to lose.
- Never invest in asset classes you do not understand.
This way, you can maximise your hard-earned money.
Conclusion
Lifestyle creep can ruin your financial health. You must avoid it at all costs. Be wise with your money, especially as you earn more income. Instead of buying fancy and expensive things, use the money to make more money instead. Purchase assets, invest more, and always live below your means. This is the surest way to build wealth.
