Then analyze the results of your spending review and note your excesses. Track you’re spending for 2-3 months and add on your large one-time expenses not included in the tracking period. The first step to tackle this issue is to undertake a detailed review of your spending. So if you have that sobering moment and come to the realization your lifestyle has expanded to your salary or business income, what can you do? Here are a couple basic solutions: I observe many millennial's spending their entire salaries on bottle service at restaurants, expensive vacations, cars and costly bachelor and bachelorette parties to exotic locales for their friends. Lifestyle creep is not only an “older person” issue. Most discouragingly, some people just pull an Ostrich and put their head in the sand. For others, their spending habits are so entrenched and/or so financed they need to engage a financial planner or money coach. The reality is you may be swept aside by the Joneses in retirement, as they may only hang out with those "friends" who can spend with them and who have the capital to continue spending at excessive levels.įor some people, all they need is that sobering meeting and they immediately start getting their act in gear. However, the Joneses may have way more money than you and it is only your current income that allows you to keep up. It is only when I force someone to face the reality that once the gravy train (salary or business) stops, their income requirements are so massive, that their current and retirement assets will be insufficient to fund their needs (even if they significantly reduce their costs in retirement) that I get their attention.įrom a psychological aspect, some people find it very important to maintain a certain image or lifestyle and/or keep up with the Joneses. If you are in your late 40's or early 50's, the insidious part of lifestyle creep is that your current earnings support whatever you wish to do and thus you carry on without a care in the world. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities”. Investorpedia defines lifestyle creep as “a situation where people's lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. The term “lifestyle creep” is often used to reflect this worrisome spending issue. That being said, obviously if you make $600,000, you have more leeway to catch-up, even if it seems incomprehensible you even have such an issue in the first place. If you continually expand your lifestyle to fit your increasing income or current income level, the reality of your retirement or your future living situation, may be far different than you envision it. This issue is not isolated to high-net worth people and those near retirement it is the same problem for someone who makes $80-$120,000 as for someone who makes $600,000 and the same issue for millennials (although more in context of saving for a home than retirement).
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |