Tag Archives: lifestyle creep

Lifestyle Creep Checkup

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Well, I decided to give myself a Lifestyle Creep checkup and report back my findings!

Now a lot of you are more familiar with the phrase: Lifestyle Inflation, but I prefer the more precise phrase: “Lifestyle Creep”. The two concepts are slight different and to me the more accurate representation of my experience is Lifestyle Creep. If you are interested in the differences between the two terms, check out my article called “The Difference Between Lifestyle Creep and Lifestyle Inflation“.

Before I go into my lifestyle creep checkup, let me discuss what has enabled lifestyle creep to come into my life in the first place.

At the beginning of 2010, I finally became totally debt-free! By totally debt-free, I mean no credit card debt, no car loans, no home mortgages or any other type of debt! Eliminating all of my debt increased my income stream by so much at I wrote an article about it called: Paying Off Your Mortgage is Like Working at a Second Job! This increased discretionary income stream is the source that has been fueling my slow lifestyle creep advancement. Now onto the checkup!

My Lifestyle Creep Checkup

  1. Increase in more expensive vacations, versus in the past occasionally skipping vacations for certain years. (I’m okay with this, and I totally accept and want this!)
  2. Increased consumption at gourmet coffee shops (This lifestyle creep element has to be stopped or reduced!)
  3. Lack of concern about sudden expenses. My wife got a speeding ticket recently and we just below it off. In the past, we should try to account for the expense (not to mention the increase in our car insurance payments). (complacency is enemy of those trying to become wealthy, this is not acceptable!)
  4. Kids are entered into sports without cost considerations (I’m half and half on this. If the program offers value to my kids, then “lifestyle creep” be damned, if not then I need to cut it out!)
  5. Dinning out, multiple times during the weekend. Sometimes, we go out to eat up to three times in one weekend. (This is horrible! Need to sharpen the Axe)
  6. Both my wife and I go out and spend money with friends on movies, lunch, golf and special trips. (I’m half and half on this too, some lifestyle increase is good since we derive a lot of value out of these experiences)
  7. I didn’t carpool with a friend from work when gas prices went over $3! See this post: Carpooling to Save Money and Reduce Gas Prices! I found that I enjoy my personal time too much to share it anymore. Plus, when I drive to work, I think of blogging ideas. (This is horrible, but I accept it anyway!)

Overall, for this past year, I would give myself a “B+” on my Lifestyle Creep Checkup, and here’s why:

  1. I’ve been able to pay my credit card bill in full each month.
  2. I increased my contribution to my 401(k) to near the max that is allowable. I didn’t max it out totally because of the unpredictability of bonuses and other extra monetary rewards.
  3. I’m participating on my employer’s ESPP! Read this article: Getting Over 15% Return By Saving Money In An ESPP for a way to make better money than the typical stock returns, with little to no risk (It’s been all up for me!). I consider this one of the more intelligent moves I’ve made recently!!!
  4. I’ve been able to make a little money by blogging. This is a win-win scenario for me because I get money for doing something that I really enjoy!!!

Lifestyle Creep Checkup Conclusion

Yes, I have some lifestyle creep in my life, but I’m still saving over 25% of my income and investing it. I’m also living a more balanced life and really enjoying my vacations without worrying about how I’m going to be able to afford them!

I will have to cut out some fat in my lifestyle if I want to remain debt-free, but I don’t think it will be that difficult to accomplish.

Hope you enjoyed my lifestyle creep checkup. How are you going, are you experiencing any such phenomena?

MR

 

 

Debt Free, Now What?

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Back on February 2010, I became totally debt free, but now what?

I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments!  So now that it’s seven months later and how much extra did I save or invest?  Not a single cent!

So what’s the problem?  Why haven’t I been able to catch up?

Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!

But it’s also been a subtle form of LifeStyle Inflation!  Thinking back now, I realize that when wants would arise, I would just go ahead and buy it.  Yeah, I thought about it a bit, but I knew that I had the cash.  Then when our car and lawn mower broke down, I had the cash too…

So now will I begin my saving and investment regiment?  I certain hope so!

The only think that I’m worried about is the fact that my house is over 10 years old now, and it seems like things are starting to look a little run down!  I expect things to start breaking soon or later!

I decided to lower my expectations to only save and invest $500 a month.  Hopefully, I’ll be able to build back up to $1,000 though!  I plan on paying myself first this time.  That way I won’t have to feel guilty about missing my goal!

We’ll see if i can get my lifestyle expenses under control so I can accomplish my new goal!

-Don

Update 11/05/2012

Debt Free Now

Okay, the tide has definitely turned since I initially wrote about being debt-free now!  The excess in the amount of money I was saving dramatically increased after 10 months after becoming debt-free!  So I increased my 401k contribution up to 17% of my income, and still had a lot of money coming in.  So I also joined my employer’s ESPP to fund my Roth IRA.  Using my employer’s ESPP has been one of the best money moves I’ve made to-date!  Especially since I’m using my ESPP to save the money for contributing to my Roth, and since I’m using my Roth IRA as a Tax Shield, there is a nest of benefits that makes this an awesome wealth accumulation strategy.  Being debt-free now has enabled me to speed up wealth accumulation by at least doubt the rate that I was saving before I became debt-free!

Other Projects and Experiments:

The Difference Between Lifestyle Creep and Lifestyle Inflation

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This is how I define the following:

Lifestyle Creep is when you expand your lifestyle by purchasing things or activities that are more expensive or better in some way.  Here is a list that I would use to describe events that can only be called Lifestyle Creep:

  • You go out and buy a boat, when you didn’t previously have a boat. 
  • You go skiing, which you’ve never done before.
  • You buy a third trophy car, but previously you only had 1 or 2 cars.
  • You buy a vacation home for the first time
  • You vacation overseas for the first time.

Lifestyle Creep is a superset of things you buy for the first time, and the set of items that “Lifestyle Inflation” represents.

Lifestyle Inflation is when you increase the cost of something that you have done before or owned before.  Here is a list that I would use to describe Lifestyle Inflation:

  • you have a small used cheap boat, and now you go out and buy a boat twice as expensive or better yet, a very expensive yacht
  • you replace your cheap watch with a Rolex
  • you replace your Chevy Malibu with a Lexus (wish I could…)
  • You replace your 36″ CRT Television set with a new 60″ LED HDTV.

With Lifestyle Inflation, you are replacing an existing object with one that is more expensive and usually better, an improvement.  All of these are also include in the Lifestyle creep catagory!

 

Why am I pointing these difference out?

I’ve been reading articles where people are using “Lifestyle Inflation” instead of “Lifestyle Creep” (or expansion).  And I just wanted to distinguish what I think the difference is between the two.

Today, there many misuses of the means of words.  For example when Columbus came over to the Americas, he called the native Americans “Indians” because he though he had landed in India.  Opps, very embarrassing, and yet we continue to still use that word to describe native Americans, even as it’s obviously incorrect.

Here are other ways we misuse words:

  • Turn on the TV– at one time TVs had a knob that you turned to make the TV come on.  Why do we still say this? (same with wall lights).  Wouldn’t it make more sense to say “switch on the lights” or “power on the TV“?  Foreigners probably think we’re stupid for saying it that way…
  • I got electrocuted touching that live wire – Electrocuted means killed by electricity.  The person is clearly alive though if they are telling us what happened to them…

Today I’m going to conclude by asking questions in the format that our friend the Financial Samurai would use:

Readers, With The Lifestyle definitions above, do they make sense to you?  Wouldn’t it make more sense to use the language in the truest meaning of our words, or should we continue to use them inaccurately? 

Do you think people just repeat and use what they hear even though they know that the word is being using incorrectly when someone famous say them?

Tell me if you think I’m being too picky or missing some bigger picture?

Thanks,

-D

Wealth Tip #1 – Controlling Lifestyle Creep After Getting a Raise or an Additional Income Stream

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Controlling Lifestyle Creep

“Lifestyle Creep” is when we finally get a big raise or pickup side income from other sources, we start to spend more.  We should be able to save this additional money, but instead the money is spent on increasing our lifestyle (via buying a new fancy car, bigger and more expensive vacations, adding new costly daily habits like lattes and buying expensive lunches).  This is the kind of behavior that keeps us from becoming financially independent!  We need to change this pattern or better yet, never let it happen in the first place!  If we save that new income, instead of going on a hog-wild spending spree, we would be well on our way to becoming financially independent.

The problem with most of my friends and co-workers is that they do spend that extra money to increase their lifestyle!

Below, I created a simplified chart to show the potential savings if we stop lifestyle creep:

After Taxes Total Discretionary Expense/Income
Total Income Expenses Income Ratio
$40,000 $35,000 $5,000.00 0.88
$60,000 $40,000 $20,000.00 0.67
$80,000 $45,000 $35,000.00 0.56
$100,000 $50,000 $50,000.00 0.5

*Note that the Total Expenses column will still increase a little.  This is expected because of higher tax rates and small increase in necessary expenses like gas, clothing, etc that might be required to make the additional income

The “Discretionary Income” column show how much more we should be able to save!  If we were to control our lifestyle for 10 year, that would add up to some serious savings, anywhere from $50,000 to over $500,000 dollars (depending on if we invested it or not).

The most important thing to note in the chart above, is that once we jump from 40,000 to 60,000, we add $15,000 to Discretionary Income.  So, in the example chart above, once we start to earn more than our Total Expenses, we get a huge jump in “Discretionary Income” (aka. savings potential)…  This is the key, we need to find that break even point in our finance and try our hardest to get over it by as much as possible!  Whether it be increasing our income, or scaling back our expenses, or better yet doing both!

This is the first in my wealth creation series.  Most posts like this one will be from my personal experiences, but some will also be from hanging around millionaires that I’ve grown up with or currently speak to.