Avoid the lifestyle creep and secure future income

Avoid the lifestyle creep and secure future income

By Mpho Mabote

The financial decisions most South Africans are paying for were made when the market was optimistic about the future.

Economic theory explains that consumers spend more when they have a healthy disposable income or anticipate salary increases. People spend more when they expect to earn more. Consumers are generally optimistic about their future income and few understand the economy enough to cushion for bad times.

We over-estimate income and under-estimate costs. It is consumer behaviour. Young graduates over-estimate their income and have dreams of buying their mothers a home and emancipating their families out of poverty.

As the reality of their meagre disposable income dawns on them the gifts they promised those back home are termed “black tax”.

Consumers are becoming smarter; they are knowledgeable about discount shopping, financial products and tax.

Yet few take account of lifestyle creep.

As we get promoted in our jobs and get extra income and bonuses, we innately desire to improve our standard of life. We are no longer happy with ‘just’ a visit to our parents and beer quarts. We aspire for champagne and holiday destinations.

We move up the hierarchy of needs once we have secured the basics of housing, food and transportation. While it is good to have these aspirations because we are an evolving species, we are not educated on securing future income or the assets we have accumulated over time.

  • Insurance: protects our income, replaces damage on our assets and pays off our outstanding debts in the event of a fatality.
  • Education policies for our children

We can blame marketing for this. Marketers have become more sophisticated and convince us that there is ‘one more thing’ to purchase. We tie our goals to things because of the self-actualisation stage.

Dream cars, dream homes with manicured gardens and dream appliances are all objects of our desire and make us feel as though we have arrived when we obtain them. This is the ‘why’ of our spending decisions. Many of which we hide from our peers who advise us against conspicuous spending.

We can blame lack of financial education. The fact that your pension contribution and tax increase in line with your income is hidden from us until we see our pay slip at the end of the month. We only get around 68% of the big number we are promised by HR when we take on a new job. Moreover, we fall under higher tax brackets as our salaries increase. Bigger investments come with higher charges.

I often feel as though the economy was made to provide things we need but today we are working just to sustain the economy. Electricity prices are where they are because we are paying a premium for Eskom’s debt.

Housing prices are so high that they push us to debt because banks would not survive otherwise. The second hand car market is protected from Japanese imports that other SADC countries enjoy to push SA consumers towards the over-priced cars in the market.

The economy is forcing us to question if we really ‘need’ more or can we do with less. The truth is your peers will still admire you for your immaterial achievements even if you do not upgrade your car.

Your children will still get the best education if you spend more time helping with homework. Your parents will still love you if you do not adorn them with them gifts every Christmas.

Christmas 2018 was projected to see R21billion consumption spend from consumers, much of which goes to gifts, entertainment and ‘nice to haves’.

So it is the lifestyle creep that leads to more damage and that we should in fact watch out for.

Mpho Mabote is a Free State born a Market Researcher at Bohadi Consultants now based in Cape Town. She writes in her personal capacity.

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