money matters

Lifestyle Creep is Gonna Get You

“I have no idea how we did it back then,” a client couple commented on a copy of their budget from fifteen years prior. They laughed as they remembered their early struggles. They knew that their life had altered over the years, but hadn’t realized how much it had transformed financially.

The changes that take place over many years can be hard to identify as you go through daily life, but looking back over time, the changes can be shocking.

Lifestyle Creep

Most people see their incomes rise over the course of their working years, and as it does, that extra money is added to what they spend. With more money to spend, lifestyle spending creeps up.

Lifestyle creep happens over years. When you were younger, you might not have imagined eating fine dining on a regular basis, or having the ability to shop at Whole Foods or to take vacations. Your own children have grown accustomed to having the gifts and luxuries you never had growing up.

We don’t notice the innocuous changes and grow comfortable with the gradual adjustments. Because it’s not a sudden change, we don’t make conscious decisions about spending. It just happens.

Lifestyle creep is normal and expected in life, but looking at it from a financial perspective, there can be negative consequences if you don’t plan well for it.

How Lifestyle Creep Effects Your Financial Plan

You become inured to spending money

The danger here is that you may not even realize it. An increase in income means an increase in spending. What use to be unimaginable, becomes the norm.

Your perception of money changes

Spending $20 outside your budget may once have thrown your finances for a loop. Now, you don’t even blink at $20 spent here and there, and may spend even more than that without a second thought.

Your lifestyle changes

While you were once able to live comfortably on a certain amount, several years later, that amount has increased. You value the experiences and luxuries of the life you enjoy now. You didn’t know what you were missing before!

Not only has your lifestyle changed, your friends and social circles have changed. Social expectations may include dining at restaurants that would have never fit your budget before. You may feel (consciously or unconsciously) that in order to maintain those relationships, you have to maintain the spending.

Your retirement numbers change

This is the most important way that lifestyle creep affects people. For most, the goal of retirement is to maintain how you are currently living your life, or even increase the amount you live on; meaning that your income level will stay the same or higher.

As your lifestyle spending slowly rises, the amount you need in retirement will also rise. A small lifestyle change now has a dramatic effect on how much you’ll need in the future. As a basic example, for every $1,000 increase in your yearly spending, or $83 per month, you will need to have an additional $25,000 saved for your retirement years to sustain that lifestyle.

People feel compelled to save more money as they near retirement. Saving money is very important, but the biggest impact a couple can make on their retirement is to decrease their expenses.

Proactively Planning for Lifestyle Creep

Track spending and income

If you had a financial plan done in the past, be aware that your income and expenses are likely to have changed over the years. To keep current with the amount you need to be saving, track spending and income and revisit that financial plan often.

The most important element of a financial plan is the dollar amount that goes out every month. When that number changes, it is critical to let your financial planner know. Together you can determine an appropriate savings plan.

Implementation

Many people intend to save their raises or bonuses. They plan on increasing their 401(k) contributions or putting extra money away for the children’s college fund or another financial goal. However, it’s far too easy to have good intentions and still miss implementing them.

Your expenses will always rise to your income unless you have a plan in place. A plan requires intentionality, energy and time. Frequently it’s on the to-do list, but can feel so enormous that it never gets done. Don’t let this happen!

Your first step is to realize how important this task is. These simple decisions to save or invest windfalls can be the defining point in your financial plan's success. Next, make the commitment to plan and take the time to put systems in place to make it easier to allocate that money. Set up an automatic investing plan or arrange to make extra payments on debt. Check into budgeting apps that help you save without thinking about it. Implementing these seemingly small steps throughout your life will yield big results.

Don’t let lifestyle creep wreck your retirement goals. Being conscious of your spending and having a plan in place will not only pay off financially, it will bring peace of mind as well.

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The Hazards of Comparing

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In my freshman year of college I had to take the Clifton StrengthsFinder assessment. Two of my top five strengths were “Competition” and “Achiever.” Over the years I’ve had to come to terms with the blessings and curses of being a competitive overachiever.

“No matter how hard you tried, no matter how worthy your intentions, if you reached your goal but did not outperform your peers, the achievement feels hollow,” reads the description of the StrengthsFinder Competition Theme.

I have no doubt that my competitive nature helped me all throughout school. It served as a motivator when subjects seemed far from interesting and kept me focused on my education. But after I finished school and completed all my professional certifications, I was left with an emptiness. Without courses, I no longer had a yardstick to measure my success. There weren’t assignments and projects to overachieve on, there were no more “A”s to show or professors to tell me what a great job I had done.

I had to find a new way to compete and achieve. The obvious way to do this was to compare myself with those around me, my peers and friends, but I quickly realized how pointless that was.

Our Financial Perspectives

One of the incredible privileges I have in my career is getting an intimate look at other people’s finances, learning what is truly important to them and observing how they choose to live their lives.

I’ll never forget the conversation I had with one client couple. Their net worth was in the eight figures, and they lived well within their means. At the end of the meeting, they looked at me and said “We know we don’t have that much, but do you think we’ll be okay?”

At that moment I realized that, no matter how wealthy you are, there will always be someone who has more. Someone who has more money, a nicer house, a better education, a better career. Even people with lots of money feel this way.

I’ve worked with families who have far more money than I was raised with and people who have incredibly successful careers. I quickly realized that the happiest people were the ones who weren’t in a financial race. Yes, they had financial goals, but the goal wasn’t to simply make more money, the goal was rooted in a deeper value.

The happiest clients were the ones who knew what was important in their lives and pursued those values rather than simply valuing the accumulation of more money. They knew, accepted and weren’t bothered by the fact that there will always be someone out there with more money.

I’ve also seen people who were miserable in their careers despite making incredible salaries. Some would say they were winning at the comparison game, but losing at life.

Dangers in Financial Competition/Comparison

The very nature of competition is being aware of other people. But there is danger in judging your life by comparing it to other people’s.

It defines what you chase

It becomes far too easy to chase financial goals because you are trying to keep up with those around you, or worse, just because you want to beat someone. Jealousy, competition and keeping step with your social circles become the motivators instead of your core values.

It says where you're at isn’t good enough

Competition runs on the same premise as the advertising industry: that you need more. You need to be more successful and have more money and move faster through your career. Competition can easily sit at odds with contentment.

It defines happiness

Far too often, happiness is found in knowing that we are better off than others. A shallow sense of satisfaction is derived from knowing that when people visit our house, they will be impressed because it is nicer/bigger/better than theirs.

It breeds discontentment

The same is true when you don’t “win.” Comparison can breed discontent when you realize that your home will never compare with others, or that your career path with never result in a salary like your brother-in-law’s. Comparison shifts our focus from our lives to others.

Looking at Comparison in a Different Way

The best example I have of re-framing comparison is my mom. My mom has three daughters-in-law who are incredibly talented and amazing women. She has acknowledged that it would be easy for her to compare herself to them, to always try to play catch up with their beautifully decorated houses and various accomplishments.

One day, while talking with my mom, she said “I decided that instead of feeling insecure about my house not being as nicely decorated as theirs, I was going to be their biggest cheerleaders. I want to be the one leading the way in telling them how incredible they are and showing them off to the people I know.”

What a great perspective.

She continued by telling me how freeing it was when she made the decision to be their greatest supporter instead of subtly comparing herself with them.

How to Avoid the Hazards of Comparing

The first step in redefining the comparison game is to know what you value and the goals that you want to pursue. Know what is important to you.

The second step is to think differently about other’s successes. When you find yourself observing other people’s situations, instead of getting the emotional high or low, stop and think about what values the other person is holding to make those decisions. Are their lives or decisions ones that would fulfill your values? Are your motivations for living the life you have in line with your values?

The third step is to cheer others on. It doesn’t come natural at first, but when you see someone else's successes, be the one to applaud for them. Changing your mindset this way can be liberating and allows you to experience contentment and joy in seeing other’s successes.

I’ll leave you with a practical example of this. Several personal friends have been taking incredible vacations around the world. My husband and I were talking about this recently in light of our values. While we would certainly love to travel overseas, with limited vacation time and managing our budget, we realized that this couldn’t be and wasn’t our priority in life. We decided that instead of taking exotic trips overseas, we’ll be making more trips to South Dakota to visit family. Our values guide us to prioritizing our relationship and our future children’s relationship with their grandparents and extended family.

Yes, we would love to go on elaborate vacations, and we very well might do that someday, but letting our values dictate out choices has fostered contentment. We’re happy with the lives that we have chosen.

Recognizing Success

I once heard Michael Port, a successful author and speaker, talk about goals. He wrote Book Yourself Solid, which was released in 2006 and held the number 2 spot on the Amazon best seller list for three days. That would have qualified as a wild success for most, but instead of being pleased with this accomplishment, Michael was disappointed that he didn’t make it to number one.

Michael said that if he would have set a specific goal of making the top 10 on the Amazon bestsellers list, he would have been thrilled with his success. But he hadn’t set a definite goal – he had just thought that, based on his current success, he would see his book reach number one. Rather than experience the joy of success, he felt the defeat of failure.

How often does this happen in our personal lives? If values and goals are not defined, we may miss those successes simply because we weren’t looking for them. Missing success happens far too often.

Why We Miss Success:

Not setting clear goals

All too often, we go about life without intentionally thinking where we are headed. Or if we do think about where we are headed, we think of a general direction rather than clear goals. “Setting goals gives you long-term vision and short-term motivation” says an article on MindTools.com about personal goal setting. Having clearly articulated goals allow us to see progress and know when we should be celebrating success rather than letting these moments of victory go by unnoticed.

Comparison to others

Many times we set out to achieve a goal and reach it, only to find out that the person next door beat us to that same goal or exceeded where we wanted to be. Our successes seem to diminish in light of someone else’s success.

One of my favorite quotes is “comparison is the thief of joy” and it couldn’t be truer here. We lose sight of our own story and journey and instead focus on other people's when we constantly compare ourselves. And many times we don’t even know their full story or where they started from or how they got to where they are.

There is always more

Regardless of how great your success is, there is always more. There is always more money, more prestige or a more enjoyable opportunity. And the more we achieve or move along our journey, the more opportunities we are presented. Our expectations shift and suddenly our focus is on the next achievement or desirable outcome, forgetting what we originally set out to do.

In an article in Psychology Today, Jay Dixit states “one of life's sharpest paradoxes is that your brightest future hinges on your ability to pay attention to the present.” If we don’t mindfully appreciate what we have accomplished, we do ourselves a disservice.

Why are goals important?

Never being satisfied

Because there is always more, it becomes far too easy to stop being satisfied with what we have and strive for what we could have. We look forward to what could, or what we think should happen and forget to look to the present and appreciating what we do have.

Happiness cycle
Happiness cycle

This creates an endless cycle of dissatisfaction. We believe that happiness will be waiting upon achieving the next milestone, yet when we finally get there, happiness can only be found hiding behind the next achievement. It's easy to forget that happiness is the journey, not an elusive destination.

Avoid lifestyle creep

As a financial planner, I would be remiss if I didn’t mention the financial implication of continually striving for more without giving heed to why.

As incomes rise, spending naturally rises as well. Lifestyle creep is innocuous: you get a raise and you treat yourself. Soon, you are treating and upgrading and splurging regularly; and before long, spending more becomes de rigueur. It’s a subtle shift in expectations. We become used to what were once far off luxuries, and now can’t imagine life without them.

Many times, I’ll hear clients comment on how differently they live their lives now than they did before. Sometimes it’s intentional, other times they look at their financial path and wonder how they got to the lifestyle they are at.

Improving your lifestyle isn’t necessarily a bad result of success, what’s important is whether or not your goals are intentional. Have you made a conscious decision how to spend any raises or windfalls, or are you floating down the lazy river of mindless spending?

Anchor your life

Making conscious financial goals anchors your life to your central values. It gives meaning to accomplishments and progress. It gives you the opportunity to make sure that the important things in your life stay important. It allows you to move forward with success without losing sight of where you want to be.

Set goals, recognize when they are achieved, and allow the sweet taste of success to fill your daily life.

What do you value?

Acting as your own boss and calling the shots while translating original and unique ideas into an income is the epitome of making a living for many people. A friend of mine, thinking her dream was to be an entrepreneur, convinced herself it was the route she should take. One day, I gave her the values exercise I use with my clients. Over the next several weeks, she continued to think about her values and what they meant for her life. She was surprised to realize that her values weren’t dependent on living an entrepreneur’s life. No longer constrained by a standard she felt compelled to achieve, she became open to looking for full time work. While she continues to be self-employed, her happiness is no longer based on the ideal of entrepreneurship, but rather on the principles of her internal values.

All too often, we’re told what our values should be. It can happen as subtly as observing our friends’ lives and desiring what they have, to the blatant advertising we are bombarded with every day in the media. Do we stop to ask if the messages we’re receiving are things we truly want in or lives? Are we chasing what others want for their life instead of examining and focusing on what is most important to ourselves?

I know a woman who found herself envious of an old school mate who frequently posted pictures of her large group of friends and all the activities they did together on Facebook. She thought she was missing out by not having a similar busy social life for herself. Finally she thought to ask herself, “is that really what I want?” She realized how much she prized her time with her immediate family, the deeper relationships she enjoyed with a few close friends, and her alone time that brought her time to reflect. Once she realized what was truly important to her, she could admire her friend’s social life, but as appealing as it looked, recognized it wasn’t for her. She was thankful for the quieter, nourishing one she already had that met her own needs.

It can be an ah-ha moment when you step back and determine what’s most important to you and realize it’s not the same as what the world has been saying you should value.

Living life within your values becomes the framework by which you begin to make intentional decisions. Instead of having financial decisions thrust upon you, you are able to take each decision and view it through the lens of your values.

Does the new promotion encourage time with my family?

Would moving to a new city enhance our sense of adventure or is it an escape?

Would this new volunteer commitment add joy to my life or is another obligation?

Does this school promote the education we desire for our children or is it the easy solution?

Am I buying things because I need or want them?

When values are not prioritized it can lead to a fractured life. People often spend money on a bigger house or a nicer car without putting thought into why these purchases are important to them. Just because it’s a good thing, doesn’t mean it’s the right thing.

When you don’t make the effort to weigh decisions based on your values, you can feel swept away by life, as though you have lost the ability to choose.

Living your life based on your values is not easy. By its very nature, values are different for different people. Being married means two people have to find a common ground for their personal values. Naturally, we want to look to others for guidance, someone who has lived a life we want to live, so we can then walk in their footsteps. We want a template. We want the certainty that living our life by our values will be successful. And many times, that’s simply not possible. Charting your own course and making difficult decisions takes courage.

What does a values-driven life have to do with a personal finance blog?

When I work with clients, there is inevitably a point where I am asked “Will we be able to do XYZ?” In fact, many times that’s the very reason why clients come to me. They want to know what options their finances allow them.

The answer is rarely as simple as a yes or no. This is where values come into play and I have to ask them:

Are they willing to work longer or step into a higher-paying role?

Are they willing to save more and cut the amount they are spending now?

Are they willing to leave less money to their children and grandchildren?

Are they willing to not travel around the world?

Are they willing to live on a tight budget?

These are all value decisions, and conflicting values decisions at that. The reality is that for every financial decision that is made, values are being defined.

The “American Dream” is a prescribed set of values, it isn’t necessarily everyone’s dream. If you strive for someone else’s dream, it stands to reason that you’ll never find your bliss. It’s crucial to identify your personal values and reexamine them frequently. Ask yourself if the life you are living is in harmony or at odds with those values. Making intentional decisions based on what’s most important to you can be liberating and will allow you to have the one thing we can agree that we all want: a happy and fulfilling life.

You're the Next Contestant . . . Why It's Hard to Talk About Money in Marriage

They could have been contestants on The Newlywed Game, their answers revealing how little they were in agreement on matters of married life. She wanted to travel to Europe and experience the finer things in life. He wanted to know how they were going to pay for their retirement and day to day expenses. She was missing out on life and she blamed him. Their financial lives were unstable and he blamed her. You could feel the tension in the room. The meeting could have used the experienced refereeing of a game show host. These conversations are all too common in my work.

Finding consensus with your spouse is one of the most important aspects of your financial life. Financial harmony within a marriage is critical to financial success.

Why is this so hard? It really shouldn’t be, but as many couples know, it is.

Talking about money is threatening

Regardless of financial situation, something about money strikes at the core of who we are. It defines our status in the world, what we can and cannot have. Money is integrated into every area of our lives, whether we like it or not. Even the most basic choices in life, like the shirt you are wearing or what you do for dinner tonight, is the result of a money decision.

There are conflicting values within each of us when it comes to money. For example, will it really matter if you eat out for lunch today? Surely it won’t affect your college savings. Setting aside money is great, but what about spending a little on that trip you’ve always wanted to take? Add another person into the equation and you have all the makings of an uncomfortable, but entertaining game show: the conflicts are endless.

When it comes down to it, we’re not talking just about money, we’re talking about values.

Ok, so these conversations are threatening, but they need to take place. So what do you do about it?

Make the conversation safe

The fastest way to make a conversation not feel “safe” is to start accusing your spouse. Remember, this is a values conversation, not just a money conversation. Neither of you want what is important to you to be minimized or insulted.

The goal of each conversation is to understand your spouse and for your spouse to understand you. Granted, sometimes you may never understand why your spouse has to spend money on that, but realizing it’s important to your spouse allows you to respect their decision.

Practical steps to making the conversation safe:

  • Find a time that works for both of you. Trying to have a financial conversation when you are multitasking or concerned about everything else in life will only lead to frustration.
  • Know each other’s strengths. If one of you hates math, budgeting can be more difficult. Forcing a spouse who hates math to balance the budget to the closest penny may be the equivalent to torture. Find a middle ground.
  • Remember the person you fell in love with. Conversations can be tense, but remember what drew you to your spouse in the first place. If this is your focus, the edge will come off your voice and your spouse will feel the difference.

Establish ground rules

Which topics are off limits or which topics need to wait until the end?

What happens when you or your spouse gets overwhelmed in the details? Does the meeting stop? Do you take a fifteen minute break? Know what your triggers are and plan for them before you walk into the discussion.

Other ground rules may be to limit the amount of time you spend on the conversation. One person may not be able to focus longer than 30 minutes, making anything over that time fruitless.

Some people may want the numbers ahead of time. They may need time to process and think through their feelings before the discussion, allowing them to not feel blindsided in the conversation.

Go beyond the numbers

As you work through your budget, commit to talking about what’s below the surface. Instead of becoming defensive over numbers, share what they represent and why their important. For example,

“This line is important to be because .....”

Being aware and identifying why you are spending, saving or investing your money is incredibly important for yourself and your spouse. You have to lead the conversation to find the underlying issues.

Lower your expectations

You may walk into a financial conversation with your spouse and expect to come to a conclusion by the end of it. Anything short of this may be a failure in your mind. Lower your expectations. Financial conversations are never a one and done type of deal. The first conversation may simply be to identify a problem. Turn your expectations into goals and realize that it may take time before you end up where you want to be.

There’s nothing to lose and everything to gain when you take the necessary steps to open the lines of financial communication with your spouse. While it may be difficult to return to the rosy glow of honeymooners, thoughtful, deliberate conversations about money in marriage can bring you one step closer to wedded bliss.