Pocast Ep. 15: Lifestyle Creep

Pocast Ep. 15: Lifestyle Creep

Invest In Your Life Podcast

Episode 15: Lifestyle Creep

Lifestyle creep is simply the expansion of your expenditures over time - and most frequently happens when there's an increase in income. Fighting lifestyle creep is key to building wealth. But what can you do? Is it always a bad thing? Find out in this week's episode.

Full Episode Transcrption

00:00  Okay, welcome to the Invest In Your Life Podcast, the show where we explore the connection between personal growth and personal finance. My name is Patrick King, and in each episode we'll talk about what you can do to live a life that’s truly rich. Don't take this the wrong way, but I am not giving you advice. I only give advice to clients who have hired me to be their fiduciary financial advisor. If you're not one of those folks than just consider this to be helpful tips and information and be sure to consult with your financial advisor, your attorney, your CPA, your witch doctor, or your mom before you try this at home.

01:00  Hello everybody and welcome to the podcast. This is the Invest In Your Life Podcast and I'm Patrick King, your host. Glad you're here with me today. I've got a great episode for you today. I want to talk about lifestyle creep. What is that? It's not just the weird dude that lives down the street. It's something that affects everybody. No matter what end of the income spectrum you're on, it gets us all at some point. So how do we combat it and what does it mean? All right. But first I want to let you know that, over the years I've worked with CEOs, all-star athletes, Grammy-winning recording artists, and dozens of other ultra-wealthy folks. And I've been able to see firsthand how they think about their money and their time, how they invest those things. And if you've ever been curious about that, I've got something on my website. It's the Five Secrets of the Ultra-Wealthy. Go to www.investinyourlifepodcast.com, go to the resources section and check that out. Download it today – and you might be surprised how differently some of these folks I think about their money and their time and how to invest each of those. So go check that out. All right, let's get the show kicked off.

02:24  All right. First part of the show today is gratitude. The one thing that I'm grateful for that came up recently is, I'm amazed where we are these days, technology wise. It's really amazing. After watching most of the Steve Jobs movie the other night, the the Michael Fassbender version, which is – I think there's like eight of them out there, but, uh, that's the one that we were watching. It just gives me an appreciation for how incredibly far we've come since the dawn of the PC. You know, it goes in the movie, it goes through introducing the Macintosh after the success of the Apple II and um, you know, and later on when he comes back to the company and you just think about the challenges that they had for the demonstrations, just to get the computer to say “hello” in the case of the Macintosh or you know, they're talking about this thing called the Internet, that might be big.

03:24  You know, it just really, really makes me laugh about how incredibly far we've come, and how incredibly quickly. And it's really Moore's Law in action. So if you don't know Moore's Law, it was named after a computer scientist who theorized that computer processing power and chip density would, you know, continue to extrapolate over time in this logarithmic, which is like just exponential, growth over time. And so, you know, I think he, he theorized that back in like the 40’s and it's held true for the most part, even to this day. It's just really incredible at the rate at which our technology is advancing and it's not just going linearly, it's accelerating. So it's kind of a crazy thing to think about just in the period of my lifetime, what I've seen and I'm not even that old, you know. So it makes me really, I'm curious to see what the next 20 years are going to look like and uh, and it's cool. It's cool to have that in here. I've got a podcast and a YouTube channel and, um, it's, it's a really amazing, and it's because of all this technology, so I'm grateful for that. So that's my gratitude for today.

04:47  All right, let's get into the show topic of the day. Lifestyle creep. It's not just the weird dude with the designer clothes and the fancy car. Lifestyle creep. What is it? Uh, simply put, lifestyle creep is the expansion of your living expenses over inflation over time. So, uh, obviously as time goes on, things get more expensive. That's normal. That's called inflation. We want a little bit of that over time. Uh, you know, we don't want the deflation thing, bad things happen when deflation happens, but the expansion of living expenses that I'm talking about here is all about finding new and more things to spend your money on. And it's a totally natural thing. It's, I think it's the money version of Parkinson's Law and, hey, I talked about Moore's Law a second ago. Let's get into Parkinson's Law.

05:50  I think he was an industrialist from 1800s. And Parkinson's law basically says work expands as to fill the time available for its completion. So, if you've got a project and there's a quick due date, all of a sudden you start working, you get motivated. But if it's due in six months, you stretch it out. Right? That was his original theory. But it also works for your expenses to, let's say you get a pay increase or you get a new job or you get an inheritance and all of a sudden you've got a windfall, you've got more money coming in. Most often folks will use Parkinson's Law in the financial sense to increase their expenses as well. Now, whether that's, you know, signing up for all the pay channels on your cable or adding Netflix or whatever it is, joining the country club, it happens a lot.

06:53  And I'm not saying that it's a bad thing. So, people get raises, new jobs, expand their lifestyle along with it. Lifestyle creep is what it is. And you know, of course there are times when it's okay, I'm not going to demonize this because, you know, especially if you're a young person starting out, and you're, you're really kind of, you know, struggling to get things going. There's nothing wrong with saying, all right, I need to step up and you know, buy nice clothes that are, that are appropriate for the work environment that I'm in. I can afford to go out and enjoy dinner with my friends there. You know, you have to live your life too. You know, it's often easy from a financial planning perspective to say, hey, we've got a plan all this assuming, you know, you're going to, you know, retire at 62 and you know, you're going to live into your 90’s or 100’s even.

07:50  But you know what, I hate to break it to you, but none of us are guaranteed any of that, right? So, we have to enjoy that along the way. It's a balancing act, right? So there is, there are times I think when lifestyle creep is completely okay and it's appropriate. So, no judgment here, but yeah, but oftentimes it's a, it's maybe something that could be, um, that can be fought against in order to put you in a better financial position to do the things that you really want to do in life. You know, there are times most often than not, I think when this lifestyle creep phenomenon is caused by comparing yourself to the other people in your reference group. So what I mean by “reference group” is just your peers in the town that you live in or the community that you're in.

08:41  That's really dangerous here in Atlanta. There's an obscene amount of money here sometimes – or seemingly. People are spending it, but do they have it or not? That's a whole different story. And this kind of came to be pretty obvious when one of my girlfriend’s friends from Nashville came down and they were out to eat and she just noticed that, hey, a Range Rover is just no big deal here, which is kind of crazy. You know, it's an expensive car, like pushing six figures and she was just blown away that, you know, you could have a Range Rover and just not get noticed for having a fancy car in this town. It's all about the reference group, right? Well, you know, when the guy down the street's got the Bentley SUV, you know, but it's all about comparisons, right?

09:37  And when you compare yourself to the other people that you think you should be equivalent to, I guess, a peer, then it's real easy to hit that judgment button and let that lifestyle creep set in. “If they can afford it, I can afford it.” You don't really know if they can afford it or not. Another place that this lifestyle creep comes from is TV and social media and that kind of thing. You know, especially Instagram and all that. And I think there's a ton of pressure out there. Folks see people's highlight reels and say, “Oh man, I didn't know Jim Bob went to Bali for vacation. We've got to go there.” You know? Well, Jim, Bob might be leveraged to his eyeballs in order to make that Bali thing happen. So yeah, when you feel like that need to expand your living expenses or get that nice thing that's going to cost you a ton of money, just take a step back, take a deep breath and ask, is this something that I really want?

10:46  Am I being influenced by my reference group? So you know, over time, the key to building the real financial security and wealth that most people that I talk to really want is resisting that lifestyle creep. How can you resist it? Right? How can you resist? You know, just acknowledge it. It's okay. It's okay. We all are affected by lifestyle creep in our lives. So, it's not something that you've got to say, “I can't be affected by this stuff.” I mean, you will. You're just human. Right? So, just acknowledging it and just let yourself off the hook, but watch out. Whenever you find yourself falling into that trap, ask if it's yours – your idea, or if it's something that you're taking on from your reference group. You know, it's great to treat yourself. Let's say you get a raise and you want to treat yourself and buy yourself something nice.

11:44  That is awesome. I'm all for that. I actually don't do a good enough job for myself in that regard sometimes, but when you do reward yourself, make sure it's just not over-the-top. Make sure that you do fight a little bit of that to increase that spread between your lifestyle and your income over time. The more you can just do that little delayed gratification over time, the more security you'll have in your finances, the better off you'll feel. So, you know, seasons in life come and go. You know, one way I think to avoid lifestyle creep is to stop doing things if you don't want to do them anymore. If you're not into a hobby, you know, you don't have to keep doing it. I know a lot of folks that are into, you know, drive in their cars on the track, like these high performance driving things.

12:42  It's not cheap. Not saying it's not worth it to them. You've got to have something that you’ve got to be excited about. Right? And if you can afford it, why not? But if you're not into it anymore, do you really have to keep that track car? Do you have to keep the big truck to tow all that crap around all the extra tires and wheels and all that? You can just stop. Uh, you know, I'm going to save that one for another podcast episode too. Sometimes it's easy and good to quit things. If you moved away from a, from your hometown, but you still got season tickets to your favorite ball team, you know, out of sentiment. Maybe it's time to give those up one way to combat against that lifestyle creep right there and stuff like that. You know, Game of Thrones is over.

13:28  Do you need to keep paying for HBO? I don't know. Chernobyl was amazing, by the way. If you haven't seen that Chernobyl many series, it's awesome. Same with Netflix. I kind of feel like if it wasn't for Stranger Things, Netflix would be gone for me right now. That sucker's coming out in July, so they're going to get another couple of 15 bucks out of me. But yeah, so that's what I've got today. Lifestyle creep, if you can resist it, it's a good thing for your finances is a good thing for your peace of mind. Good thing for your net worth. But it's not completely possible to fully resist and it's maybe not a good thing. Definitely resist too. And we all deserve to enjoy the wealth that we have and that wealth needs to support the life that we want. Not the other way around. You know, at the end of the day, that's what it's all about. People put the wealth at the top of the pyramid, but your happiness and your fulfillment and your meaning, it needs to be at the top of the pyramid and the wealth needs to support it. Not the other way around. So that's it. That's the topic of the day today.

14:39  All right. It's time for Q&A. This week’s question comes from a new client of mine that asked about Roth IRAs. You know, in doing what I do, I get a lot of advice from marketing folks and they tell you know, hey, be authentic and be yourself and don't, don't put out content about what people need to do with Roth IRAs. So I hear a lot that, this kind of content, like the nuts and bolts of financial planning is just boring and nobody wants to deal with it, but people still need to know, I guess. So yeah, I hate to assume, and I had a question about it. So a Roth IRA is different from a traditional IRA. So your traditional IRAs, you know, same type of account as your 401k where the money that's in the account you haven't paid taxes on yet, so you can put that money into the account, let it grow.

15:39  And when you take it out, you've got to pay taxes on it. A Roth IRA is different. You pay taxes on the money before it goes into the account. But the cool thing is, is it grows. Once it's in there, it grows. And when you take it out, you don't pay any taxes on it. The no-tax plan in the future is always a good one if you can pull it off. So it doesn't make sense sometimes for a lot of people who have high incomes and are paying a lot in income taxes right now. You know, deferring the taxes may be the best move. If you can do some money into a Roth IRA account or a Roth 401(k) account where it makes sense, and have tax-free money in retirement, man, that's nice. Yeah. So it's all a question of when do you want to pay your taxes. So with my clients, I try to have a little bit in each type of account, one is your normal, after-tax brokerage account. You've already paid taxes on that money and it's just your normal investment account, your IRA 401k, your deferred tax-deferred accounts, and then finally your Roth accounts. It doesn't always work out that way, but it's always a nice, nice thing to have. So that's Q&A for today.

17:01  Okay. Last section folks. It's Pura Vida time. So my Pura Vida this week is that I'm heading to Olympia, Washington to hang out with my buddy Mike for a couple of days and I'm so super psyched about it. Like, it's just beautiful out there and haven't been to Washington state since 1997 so it's been a long, long time, like way too long. I loved it out there. That was back in my former life as an engineer. I interviewed with a company out there and I was ready to go. I was ready to move, but they hired an engineer who was local and didn't have to relocate this dude. Evidently he was at Boeing, but I’m kind of grateful that that didn't happen. But I'm excited to visit. So, I'm taking the laptop and I've got plenty of stuff I can do from the road and yeah, it's going to happen. Yup. So that's pure Pura Vida today.

18:07  All right folks, that's the show for this week. Thank you so much for tuning in. I’d love to get your questions. If you've got questions, comments, anything you want to hear about, let me know. My email is patrick@transformative- oh, dag-gum. That's just the wrong email address, but you can email me there too: patrick@transformative-financial.com or you can email the podcast email: patrick@investinyourlifepodcast.com. www.investinyourlifepodcast.com. Check out the website. Um, follow me. Uh, I guess, subscribe, leave me a review on iTunes if you’re actually are getting something out of this. I've noticed, I'm starting to get some listeners. If you enjoy this… Ah, my, I just looked and my dang camera ran out of memory. Um, so good thing I'm recording the audio of this. Uh, yeah, so that's the show today. Thank you so much for listening. Technical difficulties. All right, take care and I will talk to you next week. Cheers.

19:19  Thank you for joining me today to find out more and get access to my free financial resources visit, invest in your life, podcast.com the thoughts and opinions expressed here are my own and or for general information only. They are not intended to be recommendations or specific advice for anybody. I'm not a doctor or a licensed therapist. So please consult with your healthcare provider if you had any issues regarding your physical or mental health. Any investment performance this referenced here is historical and of course has no guarantee of future results. Last but not least, the Easter bunny isn't real.

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