How to Balance Lifestyle Creep with Fun

“Drinks on Me!”  We are mere humans, so when we get a big raise, bonus, or are feeling flush with cash, we want to spend!  Some of that desire is to reward ourselves.  Some of it is to let those around us know that “we made it!”  The problem is that it is hard to identify when you have gone too far and now you are overspending. 

What is “Lifestyle Creep”?

Lifestyle creep is when you spend more as you earn more.  Also called lifestyle inflation, it is a normal process where you live according to how you perceive you should be living based on how you feel about your income.  When we are poor college students, we all eat pizza, drink cheap beer, and sleep on futons.  As we become professionals, we start to look through furniture catalogs and get snobby about what car we drive. 

Even with the best intentions, the problem occurs when our income growth starts to slow down, and real expenses continue to ramp up.  Bigger houses have bigger maintenance expenses.  As our families grow, so do our expenses.  And even if we just think about budgeting for a trip, we often forget to include the uber to and from the airport and the $5 water we buy when we get to the airport.

The thing we need to keep in mind with lifestyle creep is that it does not matter how much you make; you can spend more than you earn.  As an advisor, too often we see situations where people make 6 or even 7 figures and still somehow spend more than they make.    

Below are some tips to help those with growing incomes to make sure they are also growing wealth.

Keep a Budget:

So easy, yet so hard.  You want to make sure you are not overeating, start calorie counting.  You want to make sure you are not overspending, keep a budget.  Yes, it is that easy.  It’s the discipline that is hard.

Simple rule is don’t spend more than you make.  If you are getting 1,000 per paycheck, try and only spend 800 – 900 per pay period.  Budgets are obviously much more complicated, and some of us have necessary expenses that we can’t get around, but if you build out a plan that saves around 10% to 20% of your paycheck, you will be in better shape to handle the unexpected.

No Credit Card Debt:

This is not an option.  Credit card debt is addictive.  You can spend like crazy and then only have to pay a portion.  It is a wonderful phenomenon that our society has made borrowing so easy, with paying on lay away and purchase incentives, but you can get yourself into some real trouble here.  Pay off everything as part of your monthly budget.  Don’t just pay the minimum payment; have a plan in your monthly budget to pay everything off. 

The real problem is when you have interest accruing against debt.  Especially with credit cards, the interest rates are often so high that you can find yourself falling way behind if you let it even get a little out of hand.  Be a fanatic about getting rid of debt and keeping a lid on it.

Forced Savings: 

The best way to make sure your lifestyle doesn’t creep past your income is to have forced savings.  A no brainer is to put money into a 401k each pay period if it is available to you.  But another important step is to get in the habit of saving a portion of each paycheck into a brokerage or savings account.  Making a percentage, and a good benchmark is 10% of each paycheck.  This way if your income goes up, your savings will go up proportionally.

The Short and Sweet of it:

As we climb the corporate and earnings ladder, we want to reward ourselves for the hard work.  And we encourage this!  But don’t forget to follow a few simple steps to make sure your lifestyle creep doesn’t creep its way into destroying your bigger goals.

Keep score on your spending versus your income, and make sure you are in the net positive.  Don’t carry any unnecessary debt that has high interest rates.  And make sure you are saving a portion of every paycheck. 

Follow these rules you’ll have mad bread to break up!

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