This is such a genuine question, but a question that is difficult to answer. But let me try.
Stopping the lifestyle creep requires strong conviction, a disciplined lifestyle, and a supportive community.
A Strong Conviction
One must believe that their identity is not tied to the kind of house they stay, the type of car they drive, the brand of the clothes they wear, the bags they carry, the schools their children go to, etc. In short, you learn to live below (not within) your means.
They must also believe that in contentment, they find rest. What is contentment? Contentment is when you no longer crave for anything that you don’t already have. It is not a passive acceptance of your situation but an active pursuit of what is important. It is a conscious choice to enjoy, appreciate, and accept what you have while giving up the cravings for the things that you do not have. It requires you to know what is important to you in your life and accept that you cannot have everything. So it requires you to really take time to consider.
Once you have done that, the next step is to live a disciplined lifestyle through budgeting.
A Disciplined Lifestyle
In living a disciplined lifestyle through budgeting, you can use a simple budgeting system that I use for myself. Start with having 3 savings accounts.
- The first account (let’s call it the income and variable expenses account) is where your salary will be credited and where you will use the money inside there for variable expenses.
- The second account (let’s call it the fixed expenses account) is where your fixed expenses will be paid out.
- The third account (let’s call it the savings/investment account) is where you will use the money in there as savings or for investing. So once you have decided what are your necessary fixed and variable expenses (after going through the strong conviction step), you will be able to know how much savings/investment you can set aside in your savings/investment account.
So every month, when your income goes into your income and variable expenses account, you will set a standing instruction to transfer the amount of fixed expenses automatically into the fixed expenses account. You will do the same to transfer the amount you want to set aside for savings/investment into the savings/investment account. After your payday and after the auto transfers, whatever is left inside your income and variable expenses account will be the amount left for your variable expenses.
As your income goes up, your fixed expenses and variable expenses should not go up in tandem. You just increase the amount of savings. And once your savings/investment account has 6 months of monthly total expenses in cash, you can invest the rest.
One last point: your yearly bonus should not be used for holidays. You should plan your holidays within the 12-month income you are earning. All bonuses should go into the savings/investment account.
A Supportive Community
It is not easy to live in a world where everyone is asking you or tempting you to spend more. “Buy that house, you can afford it! Buy that car, you deserve it!” That is why it is important to find people with the same values and spend time with them.
For many of our clients, we are their accountability partners.
There was once I attended a wake and met a client there. This client told me that his client adviser is Vincent (one of our directors). He jokingly told everyone that he does not like to see Vincent for his progress meetings. Because every time he tells Vincent that he wants to buy a certain car, Vincent will stop him. Vincent will ask him, “Do you really need that car?”. He said jokingly that he is such a spoiled sport.
But then he said: “I am glad I have Vincent to stop me or I would have bought many things I do not need.” His wife who was there agreed. That is what a supportive community looks like or what an accountability partner is for.
Our CEO and Founder, Chris, noticed interest and questions on the SingaporeFI subreddit for some time and had the opportunity to conduct an “Ask Me Anything” (AMA) session in October 2023. The above question was selected from the list of many questions that were asked.
If you are interested in viewing the full Reddit list of questions, you can visit this link.
Christopher Tan, is Chief Executive Officer of Providend Ltd, Southeast Asia’s first fee-only comprehensive wealth advisory firm and author of the book “Money Wisdom: Simple Truths for Financial Wellness“. He is also a Certified Ikigai Tribe Coach.
For more related resources, check out:
1. Providend’s Money Wisdom Podcast Season 3
2. The Providend Conversation: Living the Good Life Video Series
3. How to Make Life Decisions
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