Does it feel like you’ve already won? After all, you probably surpassed so many of your peers to get that coveted position in your industry. As you work hard and long hours you probably feel good contributing to society by driving economic wheels forward; better, faster, and cheaper products and services are the result of your hard work. Along with the high-stress environment comes the high-income reward you’ve always wanted. But when you’re suddenly in the midst of monetary success, it can be difficult to know what to do with it, and as we tend to behave like the top five people we spend the most time with, you’re likely to simply do what everyone around you is doing.
By all means, you should enjoy the fruits of your labor. There’s nothing wrong with spending more. However, if your spending is increasing at the same rate as your income, it’s eventually going to catch up to you.
Lifestyle creep is real. It happens when you start earning more and spending it on nice clothes, cars, homes and so on, instead of saving towards your retirement or other long-term goals. Do you think you could work 80 hour weeks for the next thirty years? If the answer is no, then saving towards an early retirement goal or an alternative career should be a priority.
How to avoid lifestyle creep
1. Determine your personal lifestyle inflation rate: If you spent $120,000 last year, and then spent $130,000 this year, that’s an inflation rate of 8.3%. This is much higher than the U.S. inflation rate of 1.81% for 2019, so it’s clear that your spending has increased. If this spending hike is coupled with a higher income then there’s not so much to worry about, but if it isn’t then it’s definitely a metric to monitor.
2. Establish a spending plan: A high consumption lifestyle enabled by a high income is expected. You may live in an area with a high cost of living and drive expensive cars. Do you feel like your income is supporting your spending, but you’re not getting wealthy. If you really track your spending, it’s eye-opening to see where all your money is going. You’ll be surprised at what you find out about your habits. Do you feel pressure to keep up with the Jones’s? Buying anything you want on Amazon Prime with the click of a button can really add up over the month.
3. Prepare for the promotion or bonus: If you know you’re likely to be made VP or Principal in the near future and your income will significantly increase, prepare for it. Decide how much you want to save towards your retirement or other goals. Automate that savings plan so you don’t have to think about it, or end up spending the money you planned to save.
4. Spend on things that mean something: You’ve studied and worked hard for a significant number of years to get to where you are. Do you feel like you deserve it? You may feel the spending entitlement after putting in years of expensive training while some of your peers may have been taking it easy in their 20s. You should reap the rewards of your effort. But rather than making a few impulse purchases like that fancy car you don’t have time to drive or a designer bag that you rarely carry, save for a memorable trip with your loved ones abroad, or anything else that will make a real impact in your life.
Lifestyle creep is often something you don’t even know is happening, especially when you’re behaving just like everyone else around you. The key is to recognize this behavior and make changes. Make sure you save for your retirement and other important goals in your life before spending your increased earnings.
You need to escape the culture of
earning more = spending more
If you have the mindset that your income will stay at its current level and only ever increase, you may be in for a shock. How many of your peers felt burnt out and moved on to other careers? If you’re considering an exit strategy or want to start your own business, it’s important to save and plan for that too.
Being rich is not the same as being wealthy. Don’t let the sacrifices you’ve made to get where you are now go to waste. Plan, invest and live the life you truly want. Adviso Wealth can work with you to discover the authentic life you want to live.
Adviso Wealth is dedicated to working with people just like you. We want to give you the clarity and confidence you need to achieve your personal and financial goals.
To learn more, visit advisowealth.com or email firstname.lastname@example.org