Parkinson’s Law, a well-known principle, suggests that expenses tend to increase in proportion to income. Therefore, if you’re struggling to manage bills or reduce debt, simply earning more money is NOT your only answer.
We can start by saying it’s not about how much you make, it’s about how much you can keep to then invest at a later stage. Keeping money saved and not spending frivolously is very challenging when you run a household full of children. It can get tempting to ignore the budget and treat yourselves to a pricey family day out just because it’s sunny outside (which doesn’t happen very often in the UK).
Sometimes it’s the things out of your control that can dip into your savings like a last-minute emergency where you might have to travel to a sick family member out of the country. This is why it’s so crucial to have an emergency fund as it’s a key part of keeping the increased earnings for the intended purposes.
Earning more money should be seen as a vehicle not only for increasing your lifestyle but also as a way to access wealth-building assets throughout life.
This truly gives you more flexibility to spend your precious time as you wish. The more you earn, the more you should closely manage your money, meaning having more will tend to make you less diligent in watching where it’s going.
Look at some lottery winners who recklessly blow through their cash in a few years. They get a lump sum but don’t have the mindset to strategically maintain and manage that amount of money. The same goes for the average person who gets a pay rise but soon finds a way to merge that money into their increased expenses.
If you earn more money but have expenses that tend to increase in proportion to your income we’d call that a ‘lifestyle creep’
A lifestyle creep happens when people experience an increase in income and, consequently, adjust their spending habits too. As they do well financially, so too does the desire for upgraded living standards and indulgences. A new car, a larger house, a nice watch or frequent family holidays may seem like well-deserved rewards for hard work and success. Unfortunately, what might seem like a harmless adjustment to a more comfortable lifestyle can have a significant impact on long-term financial well-being if not tracked and managed.
What can you do to ensure you enjoy earning more money but also prevent a lifestyle creep?
- Create a Budget:– Establish a budget that outlines your income, expenses, debts and savings. This will give you a clear picture of your financial situation. Keep a close eye on your spending by tracking your expenses. Use apps or budgeting tools to help you monitor where your money is going.
- Delay Gratification – Practice delayed gratification by postponing certain purchases. Maybe give yourself a set of questions like How often will I use this? Do I have something similar? Can I borrow it? Can I afford to maintain it? This allows you to evaluate whether the item is a necessity or just a passing desire.
- Review and Cut unnecessary Expenses: – I know this won’t be on top of your mind when money is flowing in but just set a reminder at least once a week. Regularly review your expenses and identify areas where you can cut back it’s amazing how much money is hidden in unnecessary expenses. This will be the key to your financial future as it will highlight areas where you are overspending and where extra earnings can start to be invested or allocated towards goals.
- Set Financial Goals: – Define short-term and long-term financial goals. Having clear objectives will help you stay focused on your priorities and prevent unnecessary spending. Apply meaning to your money and intentionally label every pound that you earn with a set goal or task in mind.
- Prioritise Debt Repayment: – If you have outstanding debts, focus on repaying them before increasing your spending on non-essential items. Everyone online is talking about investing but the true wealth builder is having no debt repayments stealing from your income.
They say more money more problems, and with more money often comes more responsibility.
The number one responsibility is towards your family’s financial well-being. Prioritise necessities such as housing, education, and healthcare while setting aside a portion for emergencies.
Make informed financial decisions by researching and comparing options before making significant purchases or investments. Instil a sense of financial responsibility in your children by involving them in age-appropriate discussions about money and teaching them the value of saving.
Lead by example by demonstrating responsible spending habits, saving consistently, and avoiding unnecessary debt.
Regularly review and adjust your financial plan as circumstances change, and don’t hesitate to seek professional advice when needed. By taking a proactive and thoughtful approach to money management, you not only secure your family’s current needs but also lay the groundwork for a more secure and prosperous future. You will get problems outside money of course that’s part of life but money is something in your control to manage which could help ease some of those life problems.
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