How to defeat lifestyle creep

By Larissa Fernand |  25-09-19 | 
 
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About the Author
Larissa Fernand is Website Editor for Morningstar.in. She would like to hear from you and welcomes your feedback.

A friend of mine, a pilot, lived an envious lifestyle. Only wore branded clothes, and wined and dined in great restaurants. The annual vacation abroad (not the regular flights as part of the job), would be in business class on a paid ticket (did not want to be subject to load) of another airline.

You can imagine the jolt when Jet Airways shut down.

My friend was a good saver, but have you ever wondered how some people with high incomes still live from one paycheque to another? The answer is probably Lifestyle Creep.

The term is self-explanatory. As your discretionary income rises, so does your standard of living. This is not something that happens overnight, it creeps up on you over the years, which makes it all the more dangerous.

The question that begs to be answered is: If the carpet is pulled from under your feet, can you go back to a simple lifestyle you were acquainted with earlier? What if you lose your job? What if an earning member in your family passes away? How would you and your family deal with the fallout of a substantial dip in cash flow?

Balaji Thotadri decided to experiment with this.

He did a short Twitter thread, which I found interesting. When I approached him to write in detail about his experiment, he graciously obliged. He gave it to me in great detail, which I edited and summarized below.

Here’s the frugal life experiment of Balaji Thotadri.

Step I

Once you mull over the idea, you need to get your family on board. Fortunately, my wife was game. Part of the reason being that I am the spendthrift in the family.

The tough part was convincing my 6-year old son to play along. My wife and I had a long conversation with him, and we explained to him how we, as a family, could do a lot without spending too much money.

Ironically, this was the conversation we detested with our parents; Hamaare Zamaane me ye sab TV bhi nahin tha.

We also went to the extent of explaining the term austerity and the need for the same. The discussion at this point of time was construed by him to be more of a short-term measure and deferment of spends rather than curtailing of the same. Fair enough, it was a good start.

Step II

Ensure that you have a grip on your spending before you start curbing. I have an excel sheet detailing spends for the past 9 fiscals. I can confidently state that when you track expenses in detail, the very activity propels you to save. Just looking at where your money goes helps you stay on track.

  • Monthly expenses

These are the recurring expenses

  • Annual/Quarterly/One-time expenses

Vacations, school fees, insurance premiums, donations to charity

Step III

We decided to experiment with the monthly expenses. I looked at my spending pattern over the past 5 months to come up with a base of Rs 1.30 lakhs.

75% of the expenses:

  • Eating out (restaurants, Swiggy, home delivery)
  • Groceries (visit to the market or Hypercity, Dmart, Nature’s Basket)
  • Entertainment (movies, gaming zones, toys, Netflix, Tatasky, digital media)
  • Clothes

25% of the expenses:

  • Society Maintenance
  • Medical bills
  • Fuel
  • Laundry
  • Electricity bill

Step IV

Since it was a 30-day experiment, we decided to plan effectively.

We synced the 30-day period with my credit card cycle as spends are 90% on my card and 10% cash.

I have noticed that when you have cash, the spending just happens. People expend a lot of money in cash and do not keep track of where it’s spent. The advantage of spending on a credit card is that it is easier to track heads of expenditure.

The credit card option is only for individuals who have the discipline of paying their dues on time and not falling into a debt trap. If you are someone who truly cannot control your spending and often rollover the payments, I suggest you tear up your card.

Step V

We looked at the areas could we stop.

  • Eating out.

We decided to take a complete break from restaurants for 30 days. If friends came over, we cooked. If we went out for a meal, it was to a friend’s place.

My lunch was courtesy Swiggy – every single working day. I began to carry home cooked food.

Munching on snacks was curtailed to zero.

  • Groceries

We tend to visit the supermarket and go overboard buying stuff we do not need. Moreover, with no discipline, we tend to visit it many times over the span of a month.

Now that we were cooking at home and not purchasing snacks, we drew up a list of what we needed and restricted shopping to twice a month. We did our grocery shopping online at Big Basket. It was a detailed search for what we wanted, rather than browsing what is available.

  • Entertainment

This was where my son would take the brunt as he visited the mall twice over the weekend, either for a movie on a VIP Screen or in lounge seats, or a visit to the gaming zone, and a meal outside.

Tatasky. A normal full month subscription of all channels was upwards of Rs 1,500+ per TV and additional subscription charges for the other rooms which was paid for annually. We deactivated it in all rooms and retained it only for one room in which we watch TV. We then curated a package of barebone channels, as we also have Netflix and Amazon Prime.

  • Clothes

We steered clear on shopping for attire – be it clothes or shoes.

Lessons learned

# It is actually beneficial for your health, because you start eating healthier.

# The behavioural lessons in terms of adjustment were valuable. We made do with what we had. If we really were in need of something, we added it instantly to the grocery list so that at the next round of shopping we would not slip up. (This is akin to a practice followed at chemists, wherein as soon as they deliver a not-so-common medication, they enter it in the order book. Their objective is to maintain lower levels of inventory and thus manage working capital).

# We learnt substitution. Since trip to the malls and restaurants were terminated, we looked for alternatives: pool at the local club house, carrom at the club house, we experimented with cooking and cooked together.

# The lessons to a child are amazing. My son learnt that one can be engaged with their time without spending money. When we did cheat one night and ordered a snack from Swiggy, he suggested that since we broke the austerity code, we extend our experiment for another day. I have to admit, that made me extremely proud.

# Small changes matter. We hardly used Tata Sky but subscription was still on. By bringing down the monthly cost, we saved a small amount. Added to the “not eating out”, the savings piled up.

# We revisited our concept of luxury. We did go for a movie but avoided lounge chairs or VIP seats. We went for a show immediately after lunch, so we avoided bingeing on food outside.

When it comes to buying something for the little boy, we realized he just likes the novelty of it, it need not be big. Instead, buy something of utility that does not cost much – a fancy pencil, a colourful eraser.

Conclusion

We spent Rs 52,000, as against our earlier baseline of Rs 1,30,000. If we use the former as a base, even if we increase it by 25,000, we are in a good position; 60% of the original baseline.

The experiment turned out to be a win-win on all fronts.

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Srikar Chatterjee
Nov 15 2019 09:04 PM
Nice article Larissa..
Chandra Singh
Oct 24 2019 02:05 AM
Hi Larissa,
Thanks for the informative article. Forwarded to thousands who will benefit from it. As you rightly mentioned, even among the high earning group, living from one paycheck to another is rampant. One unexpected event - illness, child wanting to study in a foreign university, sibling in a debt etc throws several of these off balance. It reflects on the temperament, relationship with spouse and children, poor career choices, forcing oneself to do things that he or she won't do in their right frame of mind.
Learning this early in career is helpful. The moment I forwarded to a large group, and offered to send useful forwards, requests started pouring in, reflecting the need for teaching on financial planning, prudence, budgeting and fundamentals. The earlier people learn, the less mistakes they make and are more prepared.
I sincerely hope you will send similar articles which are useful for a willing mind to modify lifestyle!
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