As we become more financially successful, many of us may find ourselves living large without quite knowing how we got there. Sometimes we find that things we once wanted have now become “needs.” As a result, though our paychecks are bigger, so too are our expenses—and this can have a real impact on meeting our personal financial goals.
Lifestyle creep, otherwise known as lifestyle inflation, occurs when your standard of living improves as your discretionary income rises. Like ivy growing up a tree, if it gets out of control, it can choke your budget.
Read on for 4 concepts to help you navigate the creep.
Think about your home, your car, or your devices.
Items that used to be luxuries have become everyday things, and your new wants are things that you might not have prioritized purchasing before.
This ivy—I’m thinking in particular of kudzu, strong and attractive but mercilessly invasive—has a definite appeal. But, as it overtakes whatever it is growing on, obscuring it from view, the ivy can cut off what it covers from the resources needed to survive. So too can lifestyle creep weigh on your financial well-being and derail your goals.
Just to normalize it for you: lifestyle creep happens to most of us at some point in our lives. Your discretionary income has risen and you’re feeling flush with cash. You may find yourself spending more because you can. And it happens so gradually that you haven’t even noticed. Like the tortoise catching up with the hare, you may find yourself with a lifestyle that weighs too heavily on your nest egg.
It’s important to consider the potential consequences.
Don’t let your lifestyle creep up on your retirement
Lifestyle creep can be particularly problematic for those preparing for retirement. Retirement is on the horizon, but that surplus cash flow is here now. You might be in your peak earning years and have paid off most of your longstanding recurring expenses such as a mortgage, already put aside money for the kids’ education, and have been diligently maxing out your 401(k). You’ve been responsible. However, I encourage you to pause before you say, “So what? We can afford it!”
For most of Mosaic’s clients, the goal in retirement is to maintain their lifestyle. To do this, affected individuals will require additional savings and investments to support their up-scaled lifestyle. Spending the surplus cash flow now rather than saving it as a resource for a more comfortable retirement could hinder their goals.
four effective ways to reduce lifestyle creep
1. Reframe your mindset: choices vs. sacrifices
It’s important to think about the impact of lifestyle inflation before you make upward adjustments to your spending.
When you make strategic, conscious choices about when and how to adjust spending, decisions will feel more like a choice rather than a sacrifice.
This often starts with keeping your values and goals in mind as you spend, so that you are keeping in mind what you want most versus what you want right now.
Forget about keeping up with the Joneses; this is your life, on your terms. You have the power.
2. Spend with purpose
The best way to prevent lifestyle creep from sneaking up on you is to actively participate in your spending. Instead of buying on impulse, decide to act with purpose. Be aware of the impact or consequences of your spending choices. Make them within the context of what’s truly important to you, both in the short term and long term. (After all, if you don’t spend the money now, it will still be in your accounts later.)
Seek quality over quantity, and differentiate between wants and needs. Here's a great action tip: consider waiting 24 hours before making a purchase decision.
Vanessa Friedman, the chief fashion critic for The New York Times, recently wrote a column in praise of wearing a dress again and again. She singled out individuals like Tiffany Haddish, the Duchess of Cambridge, and Bryce Dallas Howard as modeling a different kind of value system for doing so. Friedman goes on to say that we should value our clothes and their cost. She touched on the value of weighing pros and cons, sacrificing a bit, having an internal debate, and then making a purchase decision.
A decision made in this manner appreciates quality garments and validates the investment that is the purchase, especially if you wear such a garment over many years and aren’t afraid to admit it. One well-considered garment is worth 10 “fast fashion” purchases. It puts a premium on quality over quantity (which in turn helps you accumulate less stuff).
3. Keep your goals in mind
Keep your meaningful goals displayed in a place where you can see them (visuals that represent your goals are great), such as a photo on your refrigerator or on a bulletin board in the kitchen; this will visually reinforce your decisions when you are thinking about how to spend your cash flow. The goal is to keep your means in mind when you research and make a purchase. Speak to your advisor for more tips and strategies.
Self-awareness is the number one way to combat lifestyle creep. We all know the rush of retail therapy (hello dopamine!), but it’s nothing compared to the confidence (ahh, serotonin…) that comes with making an informed decision based on your goals.
4. Know where your money goes
Develop an awareness of how your money moves and comes in and out of your life. Think about whether your spending reflects your values and priorities. For example, what message does your spending convey to your children? Are these messages aligned? This thought process can help you approach your spending in a way that may feel really good to you. Even Oprah Winfrey, who just became one of the 500 richest people in the world (congratulations Oprah!), has spoken about buying things because of a perception that she “should” be decorating her home a certain way and how it didn’t reflect what really made her happy.
Re-committing to your financial goals keeps you in the driver’s seat and often contributes to a real sense of satisfaction. Take another look at your budget and expenses. You may find expenses that are higher than you prefer, and still others that are higher than you realize. Both are excellent areas to focus on reducing.
I’m not advocating a monk’s lifestyle, but rather to seek a balance between saving for the future and living your life today. This will also make the luxury items you do research and decide to purchase more meaningful (after all that Tesla is a zero emission vehicle…).
Building purposeful thinking into your spending decisions can support your retirement goals and allow you to live your life to the fullest degree possible.
Spend with purpose, with your goals front and center, in alignment with your values. This is not only great for your present life, but it can have a very positive impact on your future.
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