Time to read : 3 Minutes
According to the Australian Financial Review, 50% of Australians expect a pay rise of about 10% this year but, for many, this increase will be swallowed by “lifestyle creep”.
What exactly is lifestyle creep?
Lifestyle creep is more of a sneaky and silent sister to the loud and very present cost of living crisis. So what is lifestyle creep? The best way to explain it is that the more you earn, the more your money may be absorbed by lifestyle spending choices.
Lifestyle creep usually happens slowly over a period of time, as the word ‘creep’ suggests.
Examples of lifestyle creep include money going to private school fees, signing up to wine subscriptions, taking luxury holidays, splashing out on renovations or buying a home in an affluent area.
And, while some people would see this as a nice-to-have problem – for Australia’s top 3% of earners it has turned into a nightmare in the last six months.
With the consumer price index having risen 3.8% in the 12 months to June 2024, it’s costing more to live well, and this problem is concentrated at both the bottom and top of Australia’s income funnel.
How is lifestyle creep impacting high earners?
Compare Club’s latest Bill Stress Report found that over a third of Australians earning $200k+ now live beyond their means and are spending at least 50% of their income on bills.
Other findings include:
The high income earners are the only group to experience an increase in the amount needed to pay on living essentials in the past six months.
This has resulted in 85% of the cohort now cutting back on non-essential spending – that’s a whopping 48% increase since November.
Mortgage repayments are accounting for the most stress, which is perhaps not entirely surprising given the property type and location they buy in.
A closer look at credit card debt and late bills
The high cost of living for Australia’s top earners means they are paying additional fees due to late repayments. Our findings revealed 46.67% of Aussies were hit with fees due to a lack of funds to pay on time.
Our survey also showed that of the Aussies earning $200k+:
60% said they used a credit card in the past six months to pay their bills.
48% had borrowed money from their family or friends in order to meet payment obligations.
33% had used a personal loan.
This group reported the highest use of credit cards, which accounted for one-third of their payments.
This is three times more than the lowest income households.
The combination of increased late payments and high usage of credit cards to pay bills highlights that even Australia’s top earners are struggling to make their income stretch to accommodate their living expenses.
If Australia’s top earners are struggling, what about the rest of us?
Looking at the bigger picture, it’s not an exaggeration to say all Aussies are struggling with the cost of living. The main stressors for everyone are the cost of utilities, housing and insurance premiums.
Thankfully, there is an odd silver lining to this crisis. Many of us are saving money and employing some sort of financial strategy – whether it be budgeting, borrowing from family or seeking advice to manage our income.
While meeting payment obligations may be stressful at times, we have moved into a rhythm of saving, cost cutting and taking a closer look at our outgoings.
Many Aussies earning under $200k started to apply good habits on their spending more than 12 months ago. On the other hand, higher earners have become slightly more confident in their financial literacy in recent months.
Interesting fact: when looking at mortgage repayments and stress, of the respondents earning $200k+, 79% said it was the number one stressor, compared to 59% of people earning below $200k.
This suggests that higher income earners may have overstretched themselves with their property purchase and not left a buffer to allow for interest rate rises.
Bottom Line:
While many Aussies are experiencing financial stress in the cost of living crisis, lifestyle creep has caught up with high income earners. And for the rest of us, we’ve been applying ways for some time now to make better choices with our finances.
It may take time to get ahead, but it’s true what they say that every cent counts.
Go Deeper:
About the May 2024 Bill Stress Index:
Our survey results included responses from more than 1,000 Australian households from New South Wales, Victoria, Queensland, South Australia and Western Australia, aged between 18 and 55+.
