The Dangers of Lifestyle Creep

Many of us experience lifestyle creep and don’t even realize it. Basically, lifestyle creep pertains to how our style of living increases as we advance financially (most often through our careers). Once, you drove a 15-year-old used car and now you might drive a BMW. You used to only vacation where you could pack the car and drive. Now, you fly your family of five to Europe every year.

I see this issue almost every day when advising clients. Quite frankly, it’s human nature to want more. Most of the time wanting more is just selflessly wanting to provide further for those we love. I certainly can identify with that; I want to provide the best for my wife and children. Unfortunately, most of those experiences cost money. At the end of the day, lifestyle creep is virtually unavoidable.

Financial Repercussions of Lifestyle Creep

If it's unavoidable, why is lifestyle creep scary? The reality is that lifestyle creep has destroyed more people’s financial lives than almost any other thing I have seen. People want to spend when they get a taste of financial wealth. In their eyes, this wealth equates to freedom. Many times they simply lose control. They buy beach homes and time shares, campers and boats. They commit to country clubs and extravagant lifestyles. These things aren’t just expensive to do, they are expensive to maintain.

The two biggest problems with lifestyle creep are:

• Once you get a taste, there is no turning back.
• Most people don’t save accordingly to maintain these lifestyles.

Let’s dissect these two problems a little further to fully understand the fright factor.

First, once you get a taste there is no turning back. Trust me on this one. It may be one of the hardest things to do - to get accustomed to a lifestyle, then go backwards. I’ve rarely seen someone (except in drastic circumstances) cut back their elevated lifestyle. People don’t sell the boat and beach home unless absolutely forced.

Second, people add these permanent and costly enjoyments to their lives, but fail in saving to maintain them. They are so focused on getting that thing, they lose sight of continuing to afford these amenities. They basically under save and over spend. They tell themselves they’ll save later.  Unfortunately, this rarely plays out. Instead, it leaves people in dire circumstances.

How to Fix Lifestyle Creep

Working with a financial planner helps because people are encouraged to leverage the working relationship appropriately, before they go out and make a large lifestyle purchase. We ask them to spell out their dreams and wishes. Together, we quantify what this means to them both financially and personally.

Taking into account timing and cost, we then set up a game plan and plan responsibly to make those dreams come true. We figure out how the client can maintain these wants forever by adjusting their plan. All this leads to accounting for what they’ll need to save, or alter, along the way. 

Additionally, repercussions of their decisions are shown through modeling software. Through this process, we can determine the net effect to their overarching financial plan and what levers need to be adjusted to make this dream a reality.

Then, and only then, can we can look each other in the eye and put together a well thought out plan. During that planning process, we’ll figure out what adjustments are needed, as well. Sometimes this means you need to work longer, or cut out other expenses. Other times, it’s simply increasing savings by a certain percent to calibrate for this new lifestyle expense. Whatever these changes are, it comes from hours of dialogue, planning, modeling and soul searching. Through the process, they now know what tweaks must be done in order to get there.

If you are not careful, these treats may just be a trick after all.  Without a plan, lifestyle creep can be very scary and stressful - a non-sustainable treat that may lead to a lot of angst in your life.

More articles by Andrew Rosen: 6 Ways to Automate Your Financial Life

Disclaimer: Financial planning and Investment advisory services offered through Diversified Financial Consultants, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRA, SIPC . Associates of Diversified Financial Consultants are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.