Are you living a lifestyle you can afford?
Lifestyle Creep happens when your expenses increase with your income. Analyze your financial goals to ensure that your spending aligns with your priorities.
You’ve heard me say it before: if you’re in your 20s or 30s and you get your [financial] sh*t together now, you will be a millionaire — a multi-millionaire, in fact. Getting on track with your finances often involves little to no compromise, especially when you’re young. However, there are exceptions to this principle.
Occasionally, at Stash Wealth, we encounter individuals or couples who are living beyond their means, caught up in what’s known as lifestyle creep. It’s typically not surprising to them when we point out this issue.
Signs of lifestyle creep
Lifestyle creep is like aging; you don’t notice it along the way. Here are the signs:
A credit card balance you can’t pay off at the end of the month.
Little to no savings relative to your income and cost of living.
But the Joneses are my friends
You know the Joneses. Their Instagram feeds are covered with photos of them taking exotic trips and eating out night after night. Sometimes you wonder, “How the hell do they have that kind of money?” From our experience, even if you aren’t hanging out with them all the time, you feel pressure to keep up. Having them as friends can be insanely expensive – but I’m not suggesting you drop the Joneses from your social calendar. However, I recommend you think twice about how they influence your decisions because, in the end, lifestyle creep only hurts you — not them.
“I can't be seen with ‘poor’ friends.”
— Someone named Jones
What you don’t know about the Joneses
The Joneses are victims of lifestyle creep themselves.
We can say, without any hesitation, that the Joneses have very little in savings and have a credit card balance that they don’t pay off in full at the end of the month. The Joneses haven’t thought about tomorrow – they are living for today. And when tomorrow rolls around, they won’t be prepared. It’s up to you to decide if being prepared for the future is important to you. There’s no magic or shortcut. The key to being prepared for tomorrow is planning today.
How do I know what I can afford?
When they come to us, most of our clients think they’ll never be good with money because they are bad at budgeting. We’ve said it 1000 times, budgeting doesn’t work – it’s not how you get ahead. The secret is to save first! To reuse an already overused Stash quote:
“Don’t save what’s left after you spend, spend what’s left after you save.”
— Warren Buffet
The Reverse Budget™
Once you figure out what you’re saving for, you’ll know how much you need to save and where. What’s left is yours to spend — that’s how much you can afford. A general guideline is that 20% of your income should go toward the future – short, mid, and long-term goals. 80% of your income is yours to spend on life. From that 80%, you have to figure out rent and everything else. If you’re still living paycheck to paycheck, you may not be able to hit the 20% guideline right away, but it’s something to work towards.
Getting back on track
Do you have a sneaking suspicion that you might be living a life you can’t afford?
It’s not too late to change course.
Start small: figure out where your money is going. Don’t gloss over that last sentence.
I encourage you to take one week and write down everything you spend. Even if you’re right and there are no surprises, it’s a good way to get reacquainted with your lifestyle. It will come in handy down the road when you are trying to look back to see if you are a victim of lifestyle creep.
Earn more. Or spend less.
This exercise will give you a good read on how much you need to earn to support your lifestyle.
There are two ways to get ahead: earn more or spend less.
While earning more money can be a lot of fun, it may require additional effort. Alternatively, cutting back on expenses can be beneficial and less tasking.
Getting back on track may require work, but it's much less painful than the alternative: debt, long-term financial issues, and being forced to compromise your lifestyle.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.
