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Saving more money is something most of us aim for. Reducing our expenses however, often feels like deprivation, and we don’t get around to it. The good news is – it’s not necessary to spend less to save more!! I will show you how to save more money each year, keeping the lifestyle and spending you’re happy with.
How to Save More Money Each Year: You Get Paid More Over Time
Generally, our pay increases over time. We get pay rises, promotions and increase our qualifications. Our pay generally tends to increase the most in our 20s, up to 8% above inflation for those with a graduate degree.
Pay rises slows over time, but they usually stay above inflation. This means that even when the cost of living goes up we, with time, have more money each year.
In 2018 in the UK, people staying in their jobs got paid about 0.6% above inflation with those changing jobs increasing their salary with 4.5%! (source)
Consider Your Own Salary History
In real life pay rises are not linear and they will not follow the averages every year. Looking back though, I would be surprised if you don’t make more today than you did 5, 10 or 15 years ago.
Personally, I’ve done a corporate career starting at an entry level job 13 years ago. Using a compound interest calculator comparing my initial salary with my current one, I have actually increased my salary with an average of 15% annually. That means that I earn 6 times more now, than that first entry level job.
And yes, that first job had a rubbish pay, but it got me on the right path!
You may have increased your pay by a lot more, or a lot less. That doesn’t really matter though as long as you realise that yes, you do actually have more money now than you did before.
So where did it all go? Why don’t you feel rich?
How to Save More Money Each Year: Lifestyle Creep
Wikipedia defines lifestyle creep:
Lifestyle creep, also known as lifestyle inflation, is a phenomenon that occurs when as more resources are spent towards standard of living, former luxuries become perceived necessities
What this is saying is that even though we earn more throughout our lives, we also spend more. That way, even though we have more money, we don’t have more money left to save.
Lifestyle creep comes in many different forms that I think you will recognise:
- Buying a bigger house to we start a family
- Getting a new car instead of buying used
- Shopping at more expensive stores
- Taking more expensive holidays
- Outsourcing more of our life – cleaning, doing our nails, highlight our hair instead of home colouring….
I’m not saying that you should live like a student in a flat share and never go on holiday for the rest of your life. What I am saying is that if we never reach the point of enough: Enough house, enough car, enough holidays and shopping, we will never save money.
And why is that important, if we make enough money to pay for it?
Because there may well be a time when we can’t.
Risk of Lifestyle Creep
The big risk of lifestyle creep is if we tie up our expenses in a way that you are completely dependent of maintaining our high income.
Data shows that people with more money have more debt than people with lower net worth. And not only that – people with a net worth of over one million dollars are struggling the most with repaying their debt!
This is because of lifestyle creep, or “keeping up with the Joneses”, is keeping everyone in the proverbial rat race.
For most people, there comes a day when we stop earning more. We take time off with the kids. We slow down at work for health issues. Get laid off or furloughed. We retire.
And then what?
House and car repossessed? No more holidays?
Or just keep working until you drop?
The Power of Enough
In Enough: True Measures of Money, Business and Life the mutual fund pioneer and founder of Vanguard wrote:
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have … enough.”
Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …
John C. Bogle
Enough is a concept that we all need to consider. It’s not only the uber rich who seem to always crave more. We all get stuck on the hedonic treadmill.
The Point of Diminishing Return
Enough is something very personal. To define it for yourself may be the most important thing you can ever do for your personal finances. And your happiness.
For everything, there is a point where more does not equal “much better”.
If you live on the street, living in a house share is “much better”.
Living in a house share, your own studio flat is “much better”.
If you have a nice for bed town house, a six-bed freestanding house may be “better”.
But when does it stop?
When does more house stop equal “much better”? When is the cost and effort of maintaining a big house more effort than it’s worth? When is the additional mortgage impacting your financial freedom?
What is enough for you?
Enough isn’t just for houses.
When is your car enough?
Does the 3rd Gucci scarf make you as happy as the 1st? (It didn’t for me – but I still love that first one!!)
How to Save More Money Each Year
When you reach your point of enough. The point where “more” no longer equals “much better”. Stop.
Step off the hedonic treadmill. Quit the rat race. Stop keeping up with the Joneses.
Live your happy life where you have enough.
And over time, as you earn more, the gap between income and expenses will grow. By saving and investing this money you will make your life resilient to changes in your finances. You will grow your pension savings. Have an emergency fund for when life throughs you curveballs.
And you never have to think about what to save on ever again! No deprivation. No going without.
Just find your enough and stop there.
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