Lifestyle creep

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Hey, Scott, how are you going? Tip fucking top. My name is Jessie Edge. I'm money expert here at Crown Money, and I'm joined by our CEO and money superstar, Scott Perry.

Howdy. How are you, Jerry?

Yeah, very good. Going well, going well today. So today I would love to talk about something which is a really cool term that has a big impact on our life, and it's something called lifestyle creep.

Creeps have a big impact on your life.

So lifestyle creep, what is it?

Well, lifestyle creep is the basic concept of everyone always thinks they're going to be richer and better off when they get a pay rise. If, oh, if I only got a pay rise, things would be different. Now, the bottom line is that if you were told 10 years ago about the money you'd be earning today, you would've, oh, my God. If I'm earning that much money, I'm.

Going to set up a life. I'm going to have everything. I want the lifestyle.

I want so much surplus, I'd be able to save, I'd be able to do this, I'd be able to invest, I'd be so different.

We keep telling ourselves that. Yeah, in the future when we have that money, we're going to be, you know, set for life, we're going to be okay.

Everyone always believes they're going to be richer and in a better financial position in the future. That's just the way we justify everything to ourselves. So lifestyle creep is where we get a pay rise and instead of quarantining that surplus or the difference, we actually increase our living standards and then we get another pay rise and we increase our living standards. We get a better car, we get a bigger house.

Suddenly you enjoy a more expensive red wine. The $8 Audi bottles just won't cover it anymore.

You go with the $8 bottle to the $30 bottle and then all of a sudden you're at the $40, $50 bottle. So it just keeps moving, moving and earning more but not saving more.

Yeah, and there's a difference because, you know, as your, say, your family grows or you do different things, you may have more expensive things that you do need to purchase, like you're actually taking care of more humans or whatever it may be. There is that side of things, but lifestyle creep is the actual. If you have two different, sorry, two products the same, but one's more expensive and one's cheaper, you choose the more expensive One, your taste has gone more expensive.

Yeah, absolutely. So you've got to drive a better car. You could have been driving the same car you're driving five years ago, but your income is more now, therefore you feel more affluent. You want to show that. And so as your income is increasing, your style of cars getting better and nicer and more, your life's getting more comfortable.

Yeah. And I mean, there is something to be said for enjoying your money and you work hard for it, and I think we've discussed this in a previous episode as well, is that, you know, if you're getting value out of something, definitely put your money towards that. But there is something that you can do to help fight lifestyle creep. And what is that?

So with that, there's a few strategies. I really like the concept of actually quarantining any pay rises. So for that, if you're earning 100 grand a year and you get a 10 grand pay rise or a 10% increase in your salary, that doesn't mean that, oh, now we have more money spent every week on the groceries or we're going to the movies more regularly. That just simply means we still live at the same level as we were today. But that pay rise, we, we're quarantining and investing or putting away into an emergency fund, we're actually not touching it. We're pretending it never happened.

Yeah, great concept. For some people that might be a little bit hard to stomach. So there is a happy middle ground that you can kind of go towards.

I like the Save More tomorrow concept because we always feel that we'll be richer tomorrow and it hurts to save now. I've got stuff I want to buy, I've got shit to do, people to see, places to go. So it's always better when we say, no, no, if I get a pay ris, I will promise to myself I'll save more tomorrow. I'll save a percentage of that pay rise.

Yes.

And so with this, they've done a huge amount of studies on it, which is phenomenal at some workplaces in America where they actually said to all their employees, these huge companies with tens of thousands of employees, who wants to sign up to the Save More Tomorrow program? And what that basically means is saying to your employer, hey, my next pay rise, I want 10%, 20%, 30% of it to be going into my super. Or I want 10, 20% of it to be going into an emergency emergency fund or off my home loan. So actually not spending the whole pay rise. Yeah, we, we get a balance of It So I love the 50. 50. So every next pay rise I save more. Tomorrow I sign up to save 50% of that.

Yeah.

So if I get 10 grand pay rise, 5 grand I get to keep. And the other 5 grand I don't see, I don't touch. It's getting invested. It's helping me grow my net worth.

Absolutely. Because I think we need to get some value out of the additional work that may be coming our way and all that sort of stuff. When you get a pay rise, quite often that equates to I need to do more work. So you want to get a little bit more enj out of your spare time or whatever you're spending your money on. So definitely taking some of that pay rise and putting it towards your expenses or an additional thing. And one thing I like to consider is, okay, well whatever you're spending or earning now, and you're spending now, that is how much your lifestyle should cost. Anything on top of that is a bonus. So think of it like that and say that out of that additional income you've earned, let's say I'm going to put 20% towards this particular area of my lifestyle which I really enjoy. And I will see it as a genuine bonus. I will see it as a genuine. I'm getting lot of value out of that. And the other 80% is going towards investing or paying down debt or. Super. And so it's like getting value out of that pay rise.

Yeah. Cost per use of fun. Cost per use, Full stop. You know, I think if we're spending money consciously and we know, okay, if I get that 10 grand pay rise, it means I get 2 grand, 20% of that to spend on just travel. So I've got a 2 grand travel budget every single year where I can just blow that on a trip to Bali or an extra trip over to the like Great Barrier Reef where it may be that you want to go, but the key factor is that other 80% is actually working for you. It's helping you move forward financially. And if I could say one thing, it's all people that we meet are frustrated financially when we first speak to them. They're working their guts out. They've never earned more money than what they're earning now. But they're not moving ahead financially. They're spinning. And so that creates frustration because progress equals happiness. And if you're not making financial progress, it's very difficult for you to be happy. That's why we love these little ways where we can invest that 80%, whether it be in something like raise or into your super fund or off your home loan. That's investing in debt. It's something where we want to make sure we're making progress financially. So we feel happy for all the work that we're doing and how hard we're working. We've got something to show for it. We're also getting more holidays and more quality time with the family. More experiences.

Yeah, absolutely. Because there is the evaporation effect. As soon as we get our money, it just seems to evaporate. So it's about thinking about making a conscious decision on where your money is going. Investing in the things you value and those pay rises, making sure the majority, majority, majority of it, or at least half of it is going towards building and progressing financially.

Exactly right. And that is a really good balance. And so we're not saying save it all. That's boring. Yeah, boring, nerdy. We're not saying save it all. We're not saying blow it all. We're saying have some balance.

50.

50 is so balanced. 80. 20. Very attractive. 80% going to savings, investing 20% into fun and experiences.

And I think, you know, and we've said it so many times, and it always comes down to it. It's conscious spending, conscious planning of your money, and to say you get a pay rise and it doesn't just kind of go back into your normal bank accounting and you just don't even really think about it, and you just continue to spend. And at the end of the week, you're like, oh, well, I've got more money, so I may as well spend it. It's saying, I've got a $10,000 pay rise. This is what I'm doing with it. And you make those decisions and asking.

For a pay rise, which we're going to cover in another podcast.

That's a really great one. And a lot of people don't do it. And a lot of people don't realize that the biggest ability to earn money in your life is your job, is your ability to earn money. That's where you're going to earn the most amount of money from. And it's like, you need to think about that. So, yeah, definitely something we will cover in another podcast. I could talk about that for ages.

Yeah. So key takeaways here. We want to make sure we don't suffer from lifestyle creep. Every single one of us does. Right now, I put my hand up. Everyone's in the same boat. Consciously think, I want to save more tomorrow.

Okay.

I'm not gonna save anything now because I don't have any money to save right now. I'll save if I get a pay rise. When I get a pay rise, I'll snap some of that off and save it or invest it and I'll enjoy the rest of it. So just constantly think, okay, I'm on 100 grand a year now. Whatever I earn over and above this 20% is going into fun experiences. The other 80% is going to investing and saving.

Awesome. Thanks, Scott.

Bonsoir, Sam.