Lifestyle creep is a dangerous side effect of making more money, especially in this economy. Keeping your goals and consistently hitting the mark, even when it becomes easy, may be the most rewarding thing you can do for your financial well-being.
I remember the first year my wife and I grossed $100,000. I had almost ten years of 55-hour workweeks behind me in management, and she just finished her medical degree and started working. Ignore the student loans. Aside from those, we had it all: a small, cheap house, one new car, and I had my ten-year-old convertible. We had bills, but when you spent the last decade scaping by on less-than-median income, it was like getting to breathe for the first time in your life. We officially made more money than our parents and grandparents ever did, and we wanted to celebrate.
Our food budget doubled, at least, that year. We ate out a little more and weren’t afraid to get that second drink with dinner. I don’t think we ate ramen or hot dogs, but a few times. All this, and we still managed to save 3 months of expenses in an emergency fund for the first time in our lives. We got comfortable at that level of spending. A little too comfortable.
It wasn’t long before our small house outside of town didn’t feel big enough or nice enough. Our cars didn’t feel like they fit us any longer. Not having a decent phone, TV, and all the subscriptions felt like a waste of our newfound, respectable income. It wasn’t long before we were living paycheck to paycheck again, just a little “better.” Lifestyle creep had taken over.
It took having our first child for reality to set in. All of a sudden, there were new expenses, less time for socializing, and then the weight of parenthood bearing down on us. All that comfort wasn’t providing joy, and our bank account wasn’t providing peace of mind. We made very conscious moves to downsize. Less going out, less alcohol, less trying to be cool, and more just trying to survive and put some money into the college fund.
The shift wasn’t our child; it was our perspective. Looking successful stopped being something we sought; feeling secure was.
I had the chance to take better-paying jobs with flashier titles and with bigger companies, but after one or two of those pipedreams later, I learned that they cut into my energy and capacity at home. We had a chance to buy bigger houses at great prices, but as much money as they may have made us in the long run, they would have stretched us thin and forced another move in a few years’ time. Clearly, the signs of upward mobility had lost their allure as we learned what they cost.
The Shift
We wanted to start saving for retirement. We were a little late to the game, from staying in school longer and trying to enjoy life a bit. Something I was struck by was how hard it was for a young couple to find a financial advisor. I spent a notable amount of time being told that no one would take us on without $25,000 or $50,000 in deposits. I would have been there in less than 5 years, but no one wanted my kind of business.
So we started focusing on saving — not in a F.I.R.E. kind of way, just seeing how much we could without tanking a life we enjoyed. We sacrificed some things we wanted to do, like nicer vacations, to keep the reserves growing. We started setting goals and worked to hit them. Those were the wins we humbly celebrated. When a house we loved came up for sale, or the allure of a new car came around, we calculated the cost and decided not to move on them, we celebrated in small ways.
Most of all, we started praising the life we had. We love our modest house in a neighborhood we feel a part of. We compliment our modest cars out loud for their utility and efficiency. We really like the same, cheap coffee, beer, and wine, and aren’t afraid to admit it. Our kids pick up on the frugality and show some of the same appreciation for things that simply work. That makes being a parent a little less stressful by itself.
We started successfully fighting the creep.
What Made It Work
The single most valuable thing we did was to permanently set our budget. We set it 4 years ago, and since then have had 3 raises and one layoff. It hasn’t changed. Every paycheck hits our high-yield savings account, and on the first of the month, the same amount goes into our checking account. That set amount used to be about 85% of our earnings, but now it is closer to 70%. Life has gotten more expensive in the last few years, but we adjust our spending accordingly.
I had one goal from the start, and that was to make about $100,000 per year. I set that goal before I met my wife, and she was on board with it. We planned our life and retirement around that number. That number alone puts us above the average American in income, and we thought it was enough to support a pretty decent life. So we locked in.
We keep our lifestyle frugal, but not oppressive. It’s funny how different people find different ways to splurge. Sometimes it is a clearance clothing rack, and sometimes it is ordering what you want at a restaurant with little consideration for the price. What is more funny is how we used to roll our eyes at each other until we did the math, and we both spent about the same amount on our unique splurges. It still wasn’t much, though. We still told each other every time.
That accountability to each other, a sense of equality, but most of all, a commitment to maintaining responsible spending in the household made it possible. The grace to let the other spend more when they wanted or needed, and even kindly challenging some decisions. Never oppressive, always wanting the other to be happy while chasing goals.
What Didn’t Work
We are not hyper-detailed or overly motivated by harsh rules. Therefore, setting very strict budgets was not our style. Instead, we had to make sure the hard numbers were on autopilot. When we tried to transfer money into our savings each month, it felt like an expense, and one we could avoid. We could always find a reason to spend versus save.
Letting bills fall all throughout the month proved unusually challenging as well. Without fail, we would forget when something was due and come up short, because we were horrible at budgets and schedules. This put us in a bind until we finally scheduled all our bills for the first week of the month. Sure, funds looked tight for the rest of the month, but knowing that balance was food and everything else we wanted to do for the month made us more conscious of spending it.
Paying off the Credit card on the due date was the same. I always found it easier to spend money on a credit card, because it seemed imaginary. I know it isn’t, but it wasn’t making my bank balance go down, so it felt less impactful. Again, we would have a bigger-than-planned bill and be back to needing to dip into savings to avoid interest. This is why we pay our credit card bills weekly now. Another disappointing thing we found out is that credit card companies don’t generally let you pay off the balance weekly automatically, so Sunday has a reminder to pay that.
Lastly, claiming maximum deductions for taxes. Everyone who likes doing their taxes will roll their eyes, but we take very few deductions on our W-4s. This means that we pay more taxes each paycheck, but we always get a refund. I know I can invest my money better than the government, but I also do not have a great track record with paying the exact right amount. I can handle getting a few hundred, or even a few thousand dollars, back at the end of the year, since my budget stays the same. What I really don’t like is owing a few hundred bucks that I wasn’t planning on spending and couldn’t estimate ahead of time.
I think this uniquely sums up our approach to our budget. Keep things as consistent as you can. No surprises, even if that costs more. It is why we have a home warranty, low insurance deductibles, and save without looking. It doesn’t minimize costs; it protects against uncertainty in the budget automatically.
So If This Were Football
We spent the time and did the work to get ahead. Dropping that 20% or more into savings each month used to be a challenge, but now it is routine. It doesn’t matter how much more we make; we don’t have to spend it. Rather than trying new things for higher returns at the cost of higher risk, we know that we can block and slowly run and consistently score while not giving up ground.
We have a strong defense. Not much can get to our back line and disrupt our playmakers (savings that are just growing and collecting modest returns). We are also not letting points accumulate against us. We focused so hard on defense that we would rather have a lower scoring game than give up ground and risk losing.
Our offense is a well-oiled machine. We know the plays that move the ball forward, and we run them with expert precision. We focus on our careers and maintaining stamina. Having a slower job that you don’t hate is a luxury you can aim for. Does it pay as well? Maybe not, but you can keep at those. You can get those small raises and only take promotions you want. This takes fighting for work-life balance, whatever that means to you. Our emergency fund helps us never worry about losing our jobs, because we have a buffer for it, and if we had to, we could take pay cuts. The paycheck isn’t the most important thing; it is achieving goals.
We aren’t bringing in our third string to get practice while we are ahead and have no interest in just winning. We want to keep the A-players and run up the score. We want the gap to be insurmountable and unrelenting. We are in this to win, so we play in a way that we can keep going at the highest performance rate for the longest time possible.
Our endgame isn’t when we hit a certain score. We are on a timer. We have a retirement age set and are planning for that date, no matter if there is $5,000,000 or $500,000 in the bank. We know the clock is running, and we are not about to let up until the buzzer rings; then we will rest. We will let up. We may still show up for work or practice the next day, but the game is over, and the score will be tallied. Maybe it is the difference between traveling the world and a shack in the woods, either way, we will have a hell of a highlight reel.