Lifestyle creep

The biggest trap in America is that most Americans have an insatiable appetite to consume more than ever in recorded history and second to that which is worse.  Is that most people spend more money as they move up the economic ladder.  Translation: The more they make the more they spend. (kind of sounds like our government).  Unfortunately, you don’t have the ability to print more money as you need it, while our stupid elected officials continue to do this, but I digress.

In some of the circles I run in around real estate investing, I often hear the term “lifestyle creep”.  The definition of lifestyle creep is simple.

occurs when an individual’s standard of living improves as their discretionary income rises and former luxuries become new necessities.

By the way we are all guilty of this on some level.  The question becomes how much is acceptable and how much is not.

Without getting in to charts and graphs of how much should you spend or not spend and what does the math say.  I want to keep to broader than that.  Because most of the graphs and charts are built on old ways of thinking and based on datasets of the average person.  There is nothing wrong with being average, if that is what you want to be.  However, if you are reading this, you most likely don’t want to be average.

I can remember my first taste of lifestyle creep.  I am sure it happened before this, but this is the one big example that pops out for me.

The first time I was promoted to a manager of a sales team.  I can remember getting a decent raise. Nothing crazy.  However, in my mind, between the raise and the new requirements of my job, which included travel.  I thought I deserved a new car.  So I went out and bought my first “luxury car”.  Now what is luxury is up to an individuals definition, but it has been broadly accepted that a Cadillac is considered a more luxurious purchase. At least at the time of the purchase.

Yep that is what I bought.  As Dave Ramsey says: “Just because I could make the payment, it didn’t mean I could afford it.” And he is right. At that time, I still had some student loan debt and probably a little bit of credit card debt.  Secondly: At this point in my life, I couldn’t really afford the fact that the second I drove that car off the lot, although it was a used car, and it didn’t go down in value as much as a brand new car does.  However, it is a depreciating asset.  And goes down in value every year it gets older.  Versus a “real asset” that actually goes up in value.

My promotion and small increase in pay was immediately erased.  And this is the trap that most Americans find themselves in. Just when they are about to get a head.  Just when they have some margin built in.  They go out and do destructive things that prevent them from moving ahead and getting ahead.

So back to the question of how much should you spend or not spend. And where I begin with this response is here.

How quickly do you want ultimate freedom?

The hard reality is most people need their job to afford their lifestyle.  And we have all been sold that we should plan on working until we are 65-70 years of age.  Or whatever the number is.  During our working career we should save a percentage of our income so we can fund our lifestyle once we make it to retirement at the age of 65-70.

Again, if you are reading my blog.  You know that I don’t subscribe to the work for forty years saving your money to hopefully retire one day.  My goal is ultimate freedom which begins with financial freedom.  Where I can live comfortably from the money generated from my personal assets.

Ultimate financial freedom is the goal for me. To get there I must create enough income that allows me to invest a larger, I would even say the largest amount possible, in to investment vehicles that will allow me to get out of the rat race of working everyday.  I don’t mind work.  I will work until the day I die.  However, I want to work when I want to work on the things I want to work on.

At the time of this writing, it is the beginning of the year so it is a perfect time to take a look at your expenses and determine if it is all necessary.  Have you allowed some lifestyle creep into your life?  And secondly can you afford it?

I have allowed some lifestyle creep into my life, and I can technically afford it pretty easily.  However, if my goal is ultimate freedom. Then the question becomes:  is the excess spending slowing me down from getting to my goal of ultimate freedom?

Take a look at your life and see where you have had some lifestyle creep?  And is it necessary.  Where has what used to be luxuries for you have now become necessities.

To your success and your future.