Reverse Lifestyle Creep

Let\’s talk about how to reverse lifestyle creep.

As you build up your quality of life through lifestyle creep, it can be painful and complicated to untangle that web. Back in the days of VHS, you had to either press reverse to rewind or even manually rewind your favorite movies to get to the beginning.

Today, we are a culture that has a very short attention span collectively.

Consequently, we desire the ability to immediately replay and fix things around us. Building a lifestyle where you are operating with little [Margin] is bound to prolong that rewinding process, especially if you don\’t make significant changes.

Usually, that process of undoing your financial mistakes causes you to lose progress in other areas. In turn, you work continuously to keep up with the lifestyle you now have and try to make progress in paying off what you acquired to build that lifestyle.

Most Americans are living paycheck to paycheck, and as your income grows, it\’s typical that your lifestyle and your overhead grow as well. Your lifestyle begins to cost you more and more to maintain—sometimes unknowingly.

For example, based on information provided by the Federal Reserve Bank of St. Louis, the average home prices in the last reported quarter hit $387k. 

For easy math, let\’s compare a starter home of $225k to an average house of $375k. Imagine that the starter home is what you purchased when you graduated college, but the average home is what you bought once you and your spouse moved to be in proximity with your closest friends. Assuming you are avoiding mortgage insurance in both cases and putting at least 20% down, the interest rates stayed fixed over that time of lifestyle creep, and you are on a fixed 30-year conventional mortgage. This includes your principal, interest, property taxes, homeowner\’s insurance, and HOA fees.

The mortgage of the $225k home is just shy of $1k/month, whereas the $375k home is just under $1.7k/month. So what\’s the big deal if you can afford the payments? Typically, people expedite their lifestyle creep by buying the house they qualify for, which stretches their housing costs to the extent of being house poor. However, it doesn\’t stop there. That larger home requires more money to furnish, possibly more maintenance due to upkeep, increased fees in the form of homeowner\’s associations and golf clubs, as well as utilities. But it still doesn\’t end there! Suppose you are living in the right neighborhood. In that case, you will also have the pressure to drive \”suitable\” vehicles, wear the right clothes, eat at the best restaurants, have your kids in extracurricular activities, and attend the private school down the road.

If you can\’t actually afford this lifestyle, what happens next?

You get a line-of-credit to cover those unexpected braces, use your credit card to eat out, and ultimately opt-in to increasingly less [Margin]. Now, if your spouse decides to work part-time or stay home altogether, where does that leave your finances? For many Americans, that scenario removes their financial [Margin], increasing stress, reducing savings, and possibly even pummeling their retirement funds. Lifestyle creep is a slow fade and doesn\’t happen overnight. When an economy expands off of debt, it\’s expanding out of a place of easy credit and cheap money. Make sure you\’re not susceptible when it inevitably contracts.