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OBG: b&b108 The Dangers of Lifestyle Creep on Growing Your Wealth

Do you feel like you’re always living paycheck to paycheck, even though your income goes up every year? Do you wonder where you money goes every month?

You may be experiencing Lifestyle Creep.

We make more money so we can live better lives. The trouble is, sometimes the money controls us more than we control it. How do you know if your lifestyle is creeping up without you realizing it? You may be finding:
– things that were once luxuries are now necessities (buying coffee every day, hiring someone to clean the house, do your laundry, etc.)
– you have more “stuff” around you and you wonder where it all came from
– you wonder why you still have trouble saving even though you’re making more money than you ever have

Episode Highlights:

Pam: That’s what tends to happen. You get kinda used to a certain way of life and it’s hard to go back. That’s the other side of lifestyle creep, is it creeps up to the point where you find yourself at this place, and it might be more than what you actually wanted to do, but now going backwards is really not easy. And it’s not easy for a lot of reasons. It’s not easy on a practical level because you kind of already maybe made some of these expanses fixed in your life, and on the other side its kind of this ego blow.

Pam: Going backwards is something that doesn’t rationally make sense to you, and also “Wow, if I’m going backwards in my spending does that mean that I’m doing worse? Does that mean I’m not moving forward? Does that mean I’m not growing? Does that mean I’m not investing in myself?”

Pam: One of the biggest myths going around, even in financial planning, is that as you get older, your higher earning years are in your later years. Right? So, you make no money in your twenties, you get little bumps in your thirties, and then the forties and fifties are those years where you just really make a ton of money. …It turns out it’s not a fact. It turns out that there’s studies that have been done. Michael Kitsis wrote and article about the fact that there were two studies from the Federal Reserve of New York and Department of Labor showing that the continuous growth throughout your years, between your twenties and your sixties, is not true. You don’t continuously increase your income every single year throughout your earning years. …For the average income earner, actually their peak earning years, or their peak growth earning years I should say, are in their twenties and thirties. And this is a study that was adjusted for inflation, so basically technically you’re making more money every single year, but you’re not making the same amount of money, keeping up with inflation, that you would’ve been.

Pam: Saving is not about the amount, it’s about the habit. So, if you think of it that way, if you think of saving as something you make a part of your regular lifestyle no matter what, then it becomes a habit, and it’s not about how much you can save today, it’s about the fact that you are saving in the first place, and then when you do make more money, then you already have that savings habit in place and that just becomes a natural part of your lifestyle.

Pam: It’s this idea of paying attention to the thing that you said that you want, versus what you’re actually doing. ‘Cause if the goal is to spend money on food that’s good for me, and I’m willing to spend the money on food that’s good for me and that’s healthy, does that mean that I can just spend whatever I want on food because I’ve given myself that permission?

Dyalekt: Lifestyle creep: what happens when you make more money and spend more money and you just keep it all even. Or are you going negative?

Pam: Instead of focusing on what you have to save, focus on what you get to spend.

Dyalekt: Only spend real money on what’s real to you.