UnderstandingFinance
PersonalFinance
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Spending Creep
Spending creep refers to the habit we have of increasing our spending to match (or sometimes exceed) any increases in income that come our way.
Whether it's through an increase in our pay, a decrease in our outgoings or perhaps even a windfall, when the financial pressure is eased, even slightly, it can be all too easy to relax our attitude to budgeting. We start to 'allow' ourselves little luxuries here and there because now we have a little extra in our budget. Little by little we increase our spending until suddenly we realise that things are getting tight again and, before we know it, even with our extra disposable income we seem to be right back where we started.
Spending creep happens to many people no matter how much they make. Hardly a month can go by, for example, without there being a report in the papers of some previously wealthy businessman, actor, musician or the like suddenly finding themselves on the verge of bankruptcy - all due to the fact that they were unable to keep their spending within their (considerable) means.
For the rest of us mere mortals who don't have incomes in the stratosphere, spending creep is also something of a worry. It's far too easy to do, especially when it's the result of consistently small amounts of money like a store-bought coffee each morning, a couple of take-away meals during the week, an extra book purchase once a month and so on. More times than not it is the little things that cause the most 'creeping' for these are the expenses that are so easy to overlook and often don't get budgeted for.
The problem with spending creep is that it comes in so many different guises. 'Buy two get one free' promotions in supermarkets are a great way to get you to part with a few extra coins. Upgrades in hotel rooms are another example. Extra channels on the T.V. Adding more services to your mobile phone account. Doing a little extra mileage in the car each month. And so on. The problem is, it all adds up.
In fact, spending creep can be so insidious that it even begins before we even have the money in our hands. How often have you been in a position where you knew you were going to get some extra money and you'd already started to spend it even before you got your hands on it? The problem is that it's a lot more fun to spend our money on meals out than it is to pay off debt and plan for our retirement - and that's precisely why so many people land themselves in debt in the first place, because being responsible with our money takes (nearly) all the fun out of having it.
Of course, there's no point in working harder if you can't enjoy the benefits of pay rises, promotions and the like, so the smart move would be to set aside a portion of any increase for debt reduction or investing and use the rest for 'lifestyle improvement'. A 50% - 50% split would be a good compromise. But, if you have debts such as credit cards or other loans then you should look at using as much of your increase as you can for paying off those high-interest loans. You'll have an even better lifestyle improvement once you get those loans paid off.
So enjoy that pay rise by all means but always tuck a little of that extra income away for a rainy day. The only way to control spending creep is to know exactly what you spend your money on and by having the discipline to ensure that you direct a good portion of that extra income into debt reduction or investments.
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