Well, it looks like the song was right: mo money, mo problems… From big mortgages, to expensive schools, to fancy cars - the more you earn, the more there is to spend it on. You might not have to clip coupons, but you do have to keep up with the payments. It’s what is commonly referred to as lifestyle creep - and it’s a trap people can easily fall into when they start earning more money.
Did you know that one in six of the most wealthy Canadians say they struggle financially? It’s just one statistic that was quoted during a recent conference on financial literacy I attended here in Toronto. The number was pulled from the recently completed Canadian Financial Capability Survey – a massive national research project that will show how Canadians rate when it comes to basic money management skills.
The results haven’t been published yet (stay tuned – they’ll appear this fall) but this initial number really threw me for a loop. Sure, we all know that Canadians are over-stretched when it comes to their budgets — but even the wealthiest?
Well, it looks like the song was right: mo money, mo problems… From big mortgages, to expensive schools, to fancy cars – the more you earn, the more there is to spend it on. You might not have to clip coupons, but you do have to keep up with the payments.
It’s what is commonly referred to as lifestyle creep – and it’s a trap people can easily fall into when they start earning more money. You earn six figures – so you need to show it through what you buy and where you live.
If you are lucky enough to be earning good money in this economy, then avoiding lifestyle creep is a way to make sure that you use all that extra cash to build for the future – after all, everyone is vulnerable to job loss these days, no matter how much you earn.
They key is to avoid changing your lifestyle based on your salary – sure, you got a good raise, but it doesn’t mean you should run out and buy that house, car, stereo, designer wardrobe etc. etc. Focus instead on always spending less than you earn in order to build savings. So, if you’re now earning 20 percent more than you were last year, stay where you are lifestyle-wise and bank the extra cash.
Sure you can afford a little extra luxury once in awhile but why not use your hard-earned money to buy yourself financial freedom rather than just building more debt and loading up on more stuff?