Quit Creepin!

Erik Goodge, CFP® | July 12, 2022

Have you ever wondered how people like Michael Jackson, Fifty Cent, and Burt Reynolds end up bankrupt? Here’s how:

It’s called lifestyle creep. Lifestyle creep refers to our growing spending habits as we earn more money. As we earn fatter paychecks, we also start to buy nicer things, eat out at nicer places, drink fancier drinks, vacation in pricier resorts, etc. We all do it, myself included. It can even make sense sometimes; e.g. when you’ve been living in your parents’ basement and noshing ramen noodles for the past 6 months.

But tread carefully because an interesting thing about lifestyle creep is that it’s hard to reverse after it’s been in motion for a while. It also doesn’t seem to add to anybody’s subjective well-being, and may even harm our subjective well-being. It can also absolutely ruin your financial future if you let it. Michael Jackson, for example, died anxious, depressed, and nearly $400 million dollars in debt, despite selling 61 million albums in the US!

So why do we do this?

Consider the giddy feeling you get when you buy a fancy new gadget. Presumably, we get these feelings because the gadget represents something new and exciting to us. It might give us a new experience, increase our productivity, make us feel better about ourselves, or distract us from our problems. As your income continues to grow, you may be tempted to continually increase these “lifestyle” expenses; more giddiness, more productivity, more distractions.

And unless you’ve been sinking dollars into things that are furthering your goals or life’s “mission”, I’m willing to bet you won’t find yourself all that much happier. Later on, as you age and your income begins to level off, as it does for most of us, you may even begin to feel squeezed. The spending habits that you’ve created for yourself may no longer be tenable. You may eventually be forced to choose between saddling yourself with debt to finance a lifestyle you’ve created out of habit or simply less satisfied with a lifestyle you are no longer accustomed to.

What should you do instead? Managing your finances doesn’t have to be about hoarding every dollar you get under the mattress. An easy first step is to try saving 10% of your income for retirement. Even if you don’t have a workplace retirement plan, plenty of affordable and accessible options exist for you. As you begin to earn more, slowly bump the percentage of income you stash away. You’d be surprised how much more you can save over your career by even bumping your retirement contributions up .25% a year.

Next, you need to find your passion, create a mission and then some goals to further that mission. With a mission and some goals outlined, drive your dollars towards those goals. You’ll be far happier reflecting on a life of achievement than a rusting car that was new 12 years ago.

Finally, be mindful of your purchases as you start to produce more income. More importantly, be mindful of your satisfaction — practice gratitude. Recognize when you’re beginning to raise the bar a little too high for your mere moment to moment satisfaction. Do this, and you will be far less likely to succumb to the scourge of lifestyle creep.