Ever wondered why your spending seems to mysteriously multiply when your income increases? Join us as we dive deep into the world of lifestyle creep - the silent financial nemesis that can sabotage your present financial status and future plans. In today's episode, we unveil the facets of lifestyle creep, explaining how unchecked spending patterns may lead to a personal inflation phenomenon that might just be draining your wallet.
From exploring the ripple effects of a pay rise to breaking down the psychological triggers such as ‘keeping up with the Joneses', we scrutinize the root causes that fan the flames of lifestyle creep. But we don't just stop there - we also provide actionable tips and tricks on how to keep this financial behemoth at bay. We emphasize understanding your financial landscape, setting clear priorities, and making small adjustments to ensure your spending aligns with your long-term financial goals. Whether you're a rookie in your career or enjoying a significant salary bump, tune in for some valuable insights that will keep your financial health in prime shape.
Ever wondered why your spending seems to mysteriously multiply when your income increases? Join us as we dive deep into the world of lifestyle creep - the silent financial nemesis that can sabotage your present financial status and future plans. In today's episode, we unveil the facets of lifestyle creep, explaining how unchecked spending patterns may lead to a personal inflation phenomenon that might just be draining your wallet.
From exploring the ripple effects of a pay rise to breaking down the psychological triggers such as ‘keeping up with the Joneses', we scrutinize the root causes that fan the flames of lifestyle creep. But we don't just stop there - we also provide actionable tips and tricks on how to keep this financial behemoth at bay. We emphasize understanding your financial landscape, setting clear priorities, and making small adjustments to ensure your spending aligns with your long-term financial goals. Whether you're a rookie in your career or enjoying a significant salary bump, tune in for some valuable insights that will keep your financial health in prime shape.
That's why it's so tricky to stay on top of this stuff. When you get these raises, there's all these different taxes that apply. You think that you have $10,000, but really you don't, and you spend $10,000. And so you end up being behind us.
Speaker 2:This is Techie Personal Finance Bootcamp, where I help tech professionals in their 20s and 30s balance a great life today without sacrificing their future possibilities. I'm your host, lucas Casaris, certified Financial Planner and founder of Level Up Financial Planning, where I help educate, coach and build strategies with my clients to help them take their financial confidence to the next level. Duh, duh, duh, duh, duh, duh. Disclaimer alert this information's for education, so don't just go use it. First consult with your financial advisor, because that's way more legit. That's it. That was Orlando Gomez, and you can catch him in season three, episode four, on how he broke into tech by riding a jingle.
Speaker 1:Hello everyone, thanks for joining me today. I'm excited to dive into what the tech is lifestyle creep. So if you never heard of what lifestyle creep is, you probably heard of what inflation is, right. So inflation is just kind of the natural economic occurrence where the cost of things go up over time. Usually it's by small amounts. The last year and a half, the previous year and a half, it's gone up by tremendous amounts. It's actually coming back into range, getting closer to the targeted two to 3% that the governments and economies would like to kind of see. And so lifestyle creep though. How does that compare?
Speaker 1:Lifestyle creep is your own personal lifestyle inflation. So it's not inflation being forced on you, it's inflation that you're inflicting on yourself, which is always a bad thing, right. If you're working hard, if you're doing tremendous things, being rewarded for it through your pay, and you start to increase your lifestyle because of that, then perfectly fine. You just wanna make sure you're aware, kind of where those edges are right. You don't wanna overshoot it. You don't want to find yourself in a tough spot where it's like, hey, I got all this money, but where the heck is it going? And that's what people run into a lot of times with lifestyle creep If you're not paying attention, if you don't really know what's going on there. So the reason why lifestyle creep can be such a pain in the butt is because it doesn't just impact your cash flow today. So that's your week to week, month to month. If you're living paycheck to paycheck even though your income has been increasing the last few years, that's probably because of lifestyle creep. So your income goes up, you find ways to spend all the extra money that you just earned, and so that's lifestyle creep that impacts NEO on your day to date. The kind of other side of the thing because it is a double edged sword is you're also hurting yourself in the future. So if you increase your lifestyle expenses and you're just used to living a certain way, you're just spending a certain amount of money. What bet's gonna compound if Um 36, I believe, if I didn't get it during the math right, I kind of lost track after I turned 30, but somewhere about 36 right now, if I were to live another 60 years, any of the purchases and habits and kind of spending that I do now, that's all going to be kind of compounded and grow over the next 60 years as well. So that's a whole heck of a lot of money. It's all. I have a couple of dollar amounts and examples I'll use a little bit later. And so why does it happen? I kind of already mentioned what typically is one of the inflows years, which is just the income going up. So that's super common. So income goes up.
Speaker 1:You just feel like you could spend more money and you can, and you probably should reward yourself a little bit. You just kind of have to weigh everything that's going on. What's, what's your goals, what's kind of your ability to spend, versus how much should you be saving for the long term? How much should you be saving for fun, cool stuff, like because I've seen people get crazy raises, their income goes up and they they spend it on things that aren't as valuable, and they're always like oh, I wish we could go on vacation, I wish we could do these special things for our kids or for ourselves. But even though their income's gone up, they've never allocated any of that money to those stuff. Yet, though they'll buy multiple pairs of shoes, clothing in my situation.
Speaker 1:So one thing that we just got back from a vacation and the vacation was planned, we kind of pre-saved for it, which is all well and good, but we created a new habit or brought back an old habit that we said and that's going to a Starbucks getting coffee practically every day, and so that's some lifestyle keep that we had as a result of going on vacation, and yet we were planning on spending all the money for that, we were planning on doing the coffee and all that, but when we got back we weren't planning on keeping the good times rolling there. So that's a little bit of a lifestyle that just happened, naturally, and yeah, I need to bring that in or just turn down some of the other spending that I'm doing personally or with family stuff elsewhere. So other ways it happens is to keep it up with the Jones's effect and that's like hey, there's your co-worker or your friend or your brother or parents got this cool new thing and, oh, that's sweet, I should get one for myself too. So that's another thing that happens is you just see other people getting these Different things, upgrading their lifestyle, and they're like, well, why, why can't I do that? I probably should do that.
Speaker 1:And then you buy things and sometimes they're valuable and sometimes you're just doing it because you think that they probably would add value. You don't put too much thought into it. You have so much money coming in you're not going to miss the 10, 20, 50, hundreds of dollars sometimes that these expenses they all add up. And if you're used to spending that money, what happens is you'll find another reason to spend that type of money the following week, the following month, and so these things do become habit. Even though you might not be buying the same little trinket or piece of clothing, you just get used to spending those things. Mention clothing. That's one for shop therapy. A lot of times is when we're stressed, when we're down, when we're upset. It's very easy these days to just jump on Amazon or jump on anything. Right now you can jump on Facebook and end up buying something somehow. So I know there's Instagram, there's Tic Tac. All these things are linked to portals where you can just quickly buy stuff now, and so it's very easy, if you're not feeling good, to push a button, say buy now and have it here in the next couple of days. So shop therapy is definitely something where people kind of find themselves leaning on that as a crutch to kind of navigate whatever they're dealing with at that particular time.
Speaker 1:In my family situation, our family has been growing. So I started my business when we had one child, very little, he was six months old when we launched Level Up and now I have four children and so, as you can imagine, we kind of made that decision. But, yeah, we have lifestyle creep. We're not just supporting myself, it's not just me and my wife, it's me and my wife, then a child, then another child, then another child, then another child, and so these things do stack up and end up in life. That's another just natural way that lifestyle creep occurs. We're getting them as sports activities because they're about that age, and so you want to be thinking about these things, planning for these different things, because, as they start to have these different embedded expenses with those decisions, well, we need to make adjustments somewhere else or we need to find ways to increase our income, and one of the earlier episodes for this season might have been the first episode for this season I talked about well, hey, do you need to increase your income? Here's different ways and all that. So you can definitely check that out. If that's something you're running to, you're like, hey, don't really want to change my lifestyle, how can we think about ideas of increasing your income to absorb that and then hopefully start being able to start saving for the future as well.
Speaker 1:And guess, one of the problems with the income going up is it's hard to do the mental math of what's going on. So if you get a $10,000 raise and you're not keeping track of stuff and you don't realize how the taxes are reflected and impacted there, so let's say you're not in a super high tax bracket, but let's say you're in the 24% tax bracket. If you get a $10,000 raise, we'll say you live in a state too that doesn't have any taxes though, like Texas or Florida or something like that. So you get a $10,000 raise that ends up becoming $7,600 is true money that you actually receive after you pay taxes, and that's not a count for social security, medicare, so there's actually another 7% that goes towards those things. So you actually have less than that. So that's why it's so tricky to stay on top of this stuff.
Speaker 1:Where you get these raises, there's all these different taxes that apply. You think that you have $10,000, but really you don't and you spend $10,000. And so you end up being behind as things end up being a lot tighter than you thought, because hey, I got $10,000. I should be able to say yes to whatever pops up whenever it comes across my radar. Say yes to it like we just got new money, so, and it's very easy to go over those amounts too. So maybe, maybe you are aware of the taxes. The only reason why we might go over and above that is because you know what. You're not keeping track of the stuff you're saying yes to. You're like oh, I got a raise, that means I can do more stuff. So as new stuff comes up, you just keep saying yes without seeing how it all adds up and counts towards that same $10,000. And it can be any amount of money.
Speaker 1:I actually thought the larger the sum, the harder it is to keep track. Right, you get a $50,000 raise. Yeah, you probably adjust for taxes. There's probably like a few thousand in taxes, probably what you think. But yeah, you want to do the math, you want to find out what tax brackets you're in and how that's all going to be affected. So that is really one of the biggest problems I see is just not actually staying on top of what that increase means to you Financially. I mentioned a little bit as far as well. It compounds and it doesn't just impact your cash flow today, but it impacts your cash flow and issues in the future, because you create this new lifestyle and it's spending that you'll need once you stop earning money.
Speaker 1:And so I'll kind of just go through an example here. Let's say, if you went from making $80,000 to making $120,000, and this is kind of after tax so if that happens in the short term, what happens is you're used to spending an extra $40,000 more, and if it ends up just kind of compounding how much you need in a monthly situation, so you're used to spending it you end up spending all the additional money that you made. And then what happens if you get laid off? We're in a tricky situation right now with the economy where lots of people are being laid off, and it's a lot of times it's very big surprises. So if you don't have the emergency savings, or even if you did have an emergency savings, you're burning through money a lot faster than you were when you had a lower lifestyle. So if you were only living off of $80,000 before and now you're living off $120,000, well, you're spending about 30% more than than you were just the previous years when you were living off that lower income. So that's how it could really compress and think even though you should be way better off, right, you were making more money. But if you're not accounted for things, if you're spending all that new money, well, there's nothing there to lean on, there's no safety net for you and you're actually going to burn yourself into the ground a lot faster. You'll end up relying on credit cards with high interest and it just becomes such a huge thing to have to pull yourself out of it. Once you do land that next position, start generating some income there. So that's the short term cash flow side of it.
Speaker 1:With a real life example, what if your income increased from 100,000 to 140,000 and you ended up spending all that money? Well, that's $40,000 a year. It's kind of a lot, right. And it's not just the problem with the short term. If you're used to spending that every single year moving forward and you need that lifestyle and retirement in order to kind of live the same quality of life that you have now, the additional amount that you'll need in investments is gonna be over $1.2 million. So just from that lifestyle increase, it only seems like $40,000, which, yes, it's a lot, but it doesn't seem like $1.2 million, right. And that's not even accounting for inflation. If we account for inflation, you'll probably actually need $2.5 million just to cover that $40,000. That's not to cover your lifestyle and living expenses before that. So those are additional funds that you need on top of what you would have needed for your normal spending before the pay increase and the inflation and the lifestyle creep. So lifestyle creep can definitely hit you without you even noticing it because, yeah, you're gonna feel it a little bit in the short term on the month of the month basis.
Speaker 1:But it's really sometimes the tail end of things when you no longer have the option to work there. It is ageism, from what I've seen from the clients I've worked with, where, yeah, once you're in your 60s, it's harder to relocate, find a new position if you were to be laid off for any reason. So some crazy things to consider and not the most fun thing to think about where, like, yep, we gotta be more diligent, we need to be more intentional with our money, but we can do stuff right. We can control this a little bit better. So, early on, get clear with what actually adds value to your life.
Speaker 1:So if you know what is actually gonna be valuable to you maybe it's travel. You can pre-save for these things. So if travel is something that's super high on your list and you want to spend $6,000 a year on travel, well, that's easy math. We divide that by $12, $500 a month, put it into a savings account, and so when things come up, you've already pre-saved for it. Because you were pre-saving and setting that money in a different account, you probably weren't spending that money. What happens is we end up being spending in this, where anything we see in our checking account a lot of times most of us will actually spend all the way up to that limit until the next paycheck hit. So if we are sending that money outside of our view, putting it into a savings account and saving it in advance, then we know that the stuff in your check-in is actually gonna be free rein, and the problem is, if you don't separate it, then you end up spending all the travel money.
Speaker 1:Travel comes up I still wanna travel that it loves to throw down the credit card. We'll figure it out, and so that's one kind of tip that I use with a lot of my clients, especially for travel, just because it is a high value for a lot of people to get those experiences and it's very easy. You're not typically traveling every month or every week, so let's let's parade this out, start saving it in advance. If there are other things so maybe it's travel, maybe it's something else that's important to you where you wanna take time and make sure that you have resources to spend it on yourself for this particular thing that's gonna add a ton of value when you get those raises. Set the money aside for those, right, don't just be like, well, I don't know what I'm gonna do with the money, but then say yes to every possible thing that pops up on your radar, saying, hey, I got a raise. I can say yes to this. You already know something that's important to you. So this is gonna fill that slot and everything else you can save and kind of make sure that, as additional income rolls in bonuses, stock options, pay increases that you're saving a portion of those.
Speaker 1:And so, speaking of saving the big thing I get all the time and it's always gonna vary depending on, well, what work have you done already, what resources do you have already and how well financially have you positioned yourself as how much should you save from these increases when you get a bonus, when you get these pay increases when the stocks do start vesting, how much should you save? So a traditional amount if you're already on track anyways, and you're gonna have a normal retirement age of about 65, if you're already on track, saving 15% should be a safe number to kind of aim for. If you're not on track, if you know like, yeah, I haven't been doing anything, I was hoping I was gonna catch up later on, well, use these pay raises, the bonuses, the stock, to start catching up, which means you probably need to save more than 15% of those funds. And so the nice thing is, as those things do start occurring and this actually happens quite frequently with a lot of my newer clients is, yeah, they're not on track, but they just landed some new role, they just started getting those stock options vesting where it's like, well, yeah, we can catch up really quick if we're saving a significant chunk of it. So that's one of the beauties of tech. That's one of the nice things about kind of investing in yourself, investing in your career and kind of taking those strategic choices to move up and advance in your career is you could make up for a lot of lost time. I have people that have just been good from the get go and when we look at stuff, it's like, yeah, like you don't need to catch up, but we can actually create a lot of other cool opportunities too. As far as taking sabbaticals, retiring early, doing some fun tech strategy stuff, it's probably more fun for me than is for my clients, but they're happy with the tech savings and the things we can do.
Speaker 1:When you have yourself in a position where you can kind of take advantage of that, do spend, do reward yourself and the best idea for this, too, is also to separate it. So, similar to that vacation fund I mentioned, like let's set aside, like hey, this is the fun stuff now, and maybe it's 50% of the new money or maybe it's a certain threshold that where you know like, hey, this should be good, I shouldn't need to go too much crazier than this, set that up to be automatic, that's going into your fund account and so when things come up, it's no longer hey, I got a raise, I should be able to afford this. It's I got a raise. I've been setting this stuff aside so I can just say yes. When I want to say yes and look at the account, does the fund account say that, yes, there's actually funds there already. We're not kind of putting the cart before the horse. We know that things are lined up and you've already been doing the hard work of putting that money aside so that you could say yes and actually understand that, is the money really there? Is it already taxed and all that? So those are going to be the biggest tips that I could offer to avoiding lifestyle.
Speaker 1:Could you send yourself up to kind of put yourself in the best position of being in control? That's something that's very important for me personally and for my clients is to get clarity as far as what, what's your situation, what's important to you, what's valuable to you, and then here's the actions we can take, here's the things we can control and how we can put yourself in a position to be confident about anything that could kind of come down the pipe here in the future. So, as you can imagine, if you're listening to this, your income's still entry level, where you're living at the poverty level. Yeah, you probably can't control your financial situation, quite like I was mentioning, but most of my clients, most of the people listening to this in my podcast, are in tech and if you're not outside of that early career yet, you're going to be there soon. So just don't go crazy.
Speaker 1:Don't start racking up credit card debt before you've actually started making the real tech money, a lot of the money that might be here in the future, because I've seen people self-sabotize themselves where again, they just waste multiple years of well. Eventually the money will come, I'll pay off the debt and I'll catch up. It's a lot harder than you realize when you're paying 20%, 30% on credit card balances and having to catch up. It's painful. It means if you're not going to make some smaller adjustments out, you're going to have to make big adjustments in the future.
Speaker 1:So making the decision now that, even though you don't have quite the money to live the lifestyle that you want, find those small values that you can reward yourself with and then just be diligent and smart, because the other stuff will come, you will grow into it in your career. You have lots of steps and milestones that you're going to be hidden, both career-wise and financially, and as you do those, you'll actually feel more empowered, more control of like yes, I actually do have the money, I'm not putting this stuff on credit card, I'm not burying myself in debt. You're going to be able to do pretty much everything you want to do, a lot of the things that you probably could have ever dreamed of because of the money and future earning potential that you have. But one thing that will sabotage that is if you were just going gung-ho right out the bank like, hey, I got a new job, I'm buying a Tesla. Well, the Tesla might be more than your income and they might approve you for it, but that doesn't mean it's a good financial decision. And so your seven of your career or your 10 of your tech career like that's when you're probably going to have excess stuff flying around, has so much money you don't know what to do with.
Speaker 1:But if you do things in the opposite order or are not patient, not smart with your plan, and you're going to set yourself up for a tough, tough handful of years and it's painful to dig yourself out of. So definitely just stay focused, find out what's important and valuable to you and plan accordingly. So hope all this was helpful, because there's enough stuff to be stressed out in the world. If you can control your financial situation and not put yourself from that situation, it's going to be so much easier to kind of navigate life when you're not stressed out about your financial stuff. So if you have any questions, feel free to reach out. If you're a client, definitely reach out. We can talk through any of this if you kind of need additional tips and help navigating your lifestyle creep. That just kind of naturally occurs and there's nothing wrong with it. It's just we want to make sure that you're aware what's going on and how that impacts you and how to make informed decisions so that you're in the most control, as financially competent as you can be. Thanks everyone.
Speaker 2:Thank you so much for listening to techie personal finance bootcamp. You can find show notes by visiting and level up financial planningcom and finding the podcast page. You'll also be able to find strategy guides, videos and cheat sheets to help you take your financial competence to the next level. If you feel this episode has added a ton of value for you, please rate and share this with friends and colleagues. Catch you next time on techie personal finance bootcamp.