20 Something Finance had an interesting article on lifestyle creep (how its defined, how to track it, and how to avoid it). For those in need of an explanation, as defined by 20 Something “Lifestyle Creep (ˈlīfˌstīl krēp), noun: the very real, very unnecessary, and very self-defeating personal finance phenomenon of increasing one’s lifestyle spending as a direct correlation to an increase in one’s income over time.”
Basically, people start out with their base pay out of school (example, $35,000/year) and then get pay raises throughout their work life (3% here, 10% here when they change jobs, etc.). With lifestyle creep, folks just take that pay raise and roll it into their spending without thinking about it. Before you realize it, you are making $65,000, but don’t feel any richer (and aren’t any better financially) than when they were making $35,000. It is something that most of the western world suffers from. You get a nicer car, eat out at nicer places, move to a nicer neighborhood, and just don’t make any real progress financially.
He goes through various ways to track your lifestyle creep and then finishes with ways to combat it, including:
- Continually monitor your expenses and be on the lookout for lifestyle creep
- Trim and trade expenses (cut back on some things to pay for other things you want)
- Practice gratitude and question every purchase
- Pay yourself first (a FIRE staple)
- Remind yourself of your goals
I went back and looked at my last five years of spending. I broke it out into our family spending (taxes, groceries, insurance, etc.) and my own personal expenses (clothing, gas, lunches/snacks, etc.). I also took out the mortgage spending for the first 2-3 years, as we are mortgage free now, and I wanted to get a good apples-to-apples comparison.
As you can see, we’ve roughly been running between $26K and $29K of family expenses. Remember that this doesn’t count medical insurance, just medical co-pays, etc.
For personal expenses, it looks like I’ve been trending down the last couple of years, and I’m running around$1,200/month.
Based on this analysis, I’d say I’m not really running a lot of lifestyle creep. When we paid off our mortgage, we dumped that right back into savings. We then found out a way in 2018 to put even more into savings and reduce our expenses (isn’t that the way it always is with FI?). I’d like to say we’ve avoided lifestyle creep, but I can say that from 1991 to 2000 (the first 9 years out of the army for me), we did experience a lot of it. I went from a $30K/year salary to a $56K a year salary, without a lot diverted to savings.
It wasn’t until 2000 (when I got a bump to $68K) that we started to dump all extra money into my 401K and our IRAs. From that moment on, we’ve kept our lifestyle fairly much around $50K – $55K a year (including mortgage) and all excess funds have gone into savings/debt payoff as we moved towards FI.
Good article to review for those folks looking for another metric to track their performance.
Mr. 39 Months