Is Lifestyle Creep Impacting You?

Brad Sherman:  Today we want to discuss lifestyle creep, a big topic in the news, along balancing increasings costs, inflation, home prices, and more. We also want to talk about saving for your future and paying yourself first. Ashley, I know you wanted to talk about it being a really important balance strike, so do you want to share some thoughts and ideas that you may have about it?

Ashley Perlmutter: Yeah, well, for starters, for those of you who don’t know what lifestyle creep is, it’s pretty much when your income is rising or has rise, but your discretionary spending rises as well. So oftentimes, when you’re making more, you start to spend more, whether it’s voluntary or not. Obviously this varies per person, but sometimes life style creep makes it feel like your raise or increase in pay no longer feels like a raise, because your spending is going up as well. So a lot of times, we see individuals let their lifestyle creep get carried away. Brad, do you want to talk about some tips that you have for people who maybe let lifestyle creep take over when they get a pay raise?

Brad Sherman: Yeah, to bring it back where we started from, I think there’s two separate things here, there’s inflation that that people are concerned about. And then there’s lifestyle creep. So getting a $10,000 raise at work doesn’t necessarily mean buying a more expensive car, or going out to more dinners or taking greater vacations. I think that you should stick with your financial plan, regardless of the amount of money that you’re making. And certainly we want you to increase your lifestyle. But as you define lifestyle creep, it really is when your expenses are far exceeding your raise or increase in pay. So certainly understand the environment that we’re in where things cost more, but find a balance between saving and paying yourself first. I think that paying yourself first is really important. We always advocate to maybe increase your 401 K contribution. If you’re not already maxing that out. If you’re eligible for a Roth IRA, start contributing to that, maybe focus on your long term goals. And then we talked about this last week, but 70% of the folks out there don’t even have a financial plan, so it’s really hard to know where you’re going without a map in mind.

Ashley Perlmutter: Yeah, that statistic was really interesting and surprising. We wrote a blog last week about how important having a financial plan is, especially given the current market environment. Like Brad said, try not to increase your discretionary spending too much when you get a raise, and stick to those long term financial goals. And like we said earlier, with inflation, things are just becoming more expensive on the day to day, so keep that in mind if you decide to spend more.

Brad Sherman: Great, let’s keep all that stuff in check, like we said, if you get a 10% raise, maybe you allocate a certain percentage to going out to dinner more, something that makes you happy, whether that’s concerts, food, but don’t go too crazy to where you’re spending the raise in excess of what you can afford. So anything else you want to touch on?

Ashley Perlmutter: No, I think that is a great place to wrap up. Let us know if you have any questions about lifestyle creep. If you feel like you need to revisit your budget, I think that’s a great place to start, especially given inflationary prices and everything going on. If you’re stressed about your investments and your portfolio allocation, now’s a great time to revisit that as well. So let us know if you have any questions and if we can help in any way. Email us at info@shermanwealth.com or schedule a complimentary 30-minute intro meeting here.