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Lifestyle Creep and You

February 6th, 2013 by 
CameronDaniels

When most of us reach a certain point in our professional and personal finance journey, we start to experience lifestyle creep, the pressure to spend more.

The causes could be social, financial... or even boredom. After a certain minimum livelihood is met, each raise or goal accomplished allows us to potentially spend or save more. Even people who value net worth growth as one of their major goals are not immune to this.

I have found even my work environment subtly pressures to spend more.

How are we pressured towards lifestyle creep?

I started my current job in a new state by purchasing a vehicle from a car dealership for the first time, a 2006 Mazda 6i in a stunning sonic blue with (gasp!) power windows, power locks and a CD player (technology!).

This vehicle has served me well: reliable with good gas mileage with the bare minimum for maintenance of tire rotation and oil changes so far. Two years into the vehicle, I still foresee owning the vehicle for at least another five years, although it is easy to be attracted to the idea of upgrading. Parking in the employee lot, it is very easy to see the other vehicles: newer Audis, expensive SUVs, luxury foreign makes and stylish convertibles. When members of my team go out to a team lunch and I volunteer to drive, it would be nice to show off a nice newer model.

Could I conceivably still save 10-15% of my income and drive a better vehicle? Surely, but at what cost?

Part of the social milieu of working in an office is where to eat for lunch. Keeping up with coworkers eating lunch at restaurants nearly every day assuredly takes a toll on your bottom line. It is compelling to look around the office and notice your many colleagues who have impeccable fashion, often at great cost.

Fashion has been described as an investment: a way to get ahead in the corporate workplace. It forces me to look at my own wardrobe and question how long have I worn a particular pair of pants. Is that shirt still in style? Couldn't I afford to update my wardrobe every 12-18 months at full cost?

Lifestyle creep is a sure path to financial catastrophe

Lifestyle creep is a sure path to financial catastrophe

Where to draw the line

In my own personal finance journey (YMMV), I am at the point where I could afford to upgrade my wardrobe more regularly or purchase a new car. Eating out every single day for lunch is also within the realm of possibility. I still would be able to contribute to my 401k and possibly save a little money on the side, but I draw the line with a higher savings rate.

Every person needs to draw their own line on what they feel is most financially responsible and secure to avoid lifestyle creep. Taking inventory of your priorities is key to at least understanding where your money is going, even if you decide on maintaining a certain portion of your lifestyle that could be cut.

Self-awareness is essential. I have a Netflix subscription but not cable TV. I own a decent watch and have a reasonable wardrobe but I don't update every 18 months. I live in a decent apartment complex in a nice suburb, but could afford a nicer apartment or save more money by living in a worse neighborhood. I even golf with moderate regularity! How dare I? How do I draw the line? The key is to establish where your money is going and then taking an honest (emphasis) inventory of whether it is worth keeping in your lifestyle. The main symptom I am trying to avoid is being blissfully unaware of how I am draining my future net worth with current decisions. Given that I am aware of my spending, I have decided it is not worth my time to cut coupons. It is not worth an extra $9/month to cut my Netflix subscription. It is not worth the extra $20/month to downgrade my internet service (I like video games).

Personal finance bloggers who emphasize cutting expenses regardless of utility do not have a realistic view of how consumers operate. Assuredly, there are many expenses that are worth cutting and there are some that are worth keeping. My private education and Netflix subscription to some is anathema to a responsible financial picture. Similarly, smart phone plans and premium TV subscriptions to me are unnecessary purchases that are easy to keep out of my current lifestyle. A healthy personal financial blueprint is being cognizant of your current spending and focusing on other important facets of your net worth picture: building income, investing in your retirement (or other goals) and avoiding credit card debt.

Surprisingly, with all this frivolous spending on luxuries like Netflix, watches and going out to lunch once in a while, I find myself $0 in credit card debt.

Cheers,

Cameron Daniels

Don't Quit Your Day Job...

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