We\’ve looked at three key components in this series on lifestyle creep. The first one had to do with avoiding lifestyle creep. The second was about reversing lifestyle creep, and the third related to downsizing without others noticing. The fourth and final component I\’ll discuss here comes down to replacing lifestyle creep with margin, and building that margin into your personal finances.
Walking into a brand new year gives us an opportunity to better examine the components of our lives in which we\’ve allowed for lifestyle creep.
This creep often influences the amount of unsecured debt that we carry and, ultimately, the lack of margin that we have. I wanted to focus on this topic because it\’s at the root of why so many end up in so much unsecured debt.
There\’s an article by Camille Maldonado called \”The Slippery Slope Of Lifestyle Creep and How To Avoid It.\” In this article, she explained \”the hot tub effect.\” The danger of lifestyle creep is that it happens gradually over an extended period, making it hard for you to notice. Think of a hot tub: if you get in and raise the temperature of the water, you\’ll acclimate to it as the water gradually heats up. There you are, sitting comfortably when a newcomer comes by to join you and steps in. However, they find it too hot and quickly step back out. Maldonado\’s example may remind you of a lobster in a kettle. I believe that our society is that lobster. And over time, as we take on more and more unsecured debt and have less and less margin, we find that the lifestyle creep that we take on day by day ends up boiling us over time. Although that\’s a crude way of putting it, I believe that many Americans are in that kettle at the boiling point and don\’t know how to get out.
Julia Kagan, longtime writer and editor of financial topics, said that lifestyle creep occurs when an individual\’s standard of living improves as their discretionary income rises and former luxuries become new necessities. How true is that in our culture today? Once it happens, how can we recognize that lifestyle creep has set in?
There are ten sure signs that lifestyle creep is upon you. And you need to look at these ten components and see which ones resonate with you, which ones make sense based on what you\’ve experienced, and if you\’re going through lifestyle creep.
The first sign comes down to being \”house poor.\”
Many Americans feel house poor because of spending 30% or more of their gross income on housing. And that is difficult today because of shortages, exponential increases in prices, and no end in sight. But at the same time, if you are in a property that you can stay put in (at least for a couple of years to improve it and move up) or if you\’re in a property that you want to be in, but maybe you couldn\’t afford it yet, you may want to consider platforms like Airbnb or house hacking. This would allow you to rent out a room or a space to help offset that cost. Building financial margin into housing has become easier and easier because of different platforms. Of course, it comes down to your comfort level in sharing your home or a casita on your property. Still, you need to figure out if your housing cost is above 30% of your gross income and what you need to change to build margin into your housing costs and your overall budget for housing.
The second sign is when you end up being \”car poor.\”
As Americans, we love our cars, and I understand that. I love cars, but we\’ve got to make sure that our cars don\’t own us. Creditkarma.com released a stat that indicates the average new car payment recently hit $568 a month. That\’s staggering, especially being that every couple of years, we go back and replace that new car with a \”new new\” car and take the negative equity from that new car and add it to the \”new new\” car. We\’re not only paying that monthly payment, but we\’re dealing with the depreciation as well. This common practice causes the debt cycle that keeps us in perpetual debt regarding vehicles.
My recommendation is always to buy a quality used car that\’s maybe two or three years old and allow that initial depreciation to take effect. I experienced this recently with my own brother, who\’s buying a new car (read: it\’s a used car, but a new car to him). He learned that the vehicle he\’s purchasing has depreciated by more than 50% in its first two years. My recommendation to him (and to you) was to not lean into buying that brand new car just because of the new car smell or the warranty. Instead, look at it from the standpoint of how you can build margin in your finances by buying a used car that someone else has already taken the depreciation on.
The third sign that lifestyle creep is upon you relates to recommended services for that car you\’ve purchased.
We often go to the \”stealership\” (ahem—dealership), and we have them maintain our vehicles. The dealership then recommends service on a periodic basis for an oil change, a tire rotation, or a new set of those performance tires, or those dang cabin air filters that you always seem to need. Unfortunately, those types of things can add up very quickly. By doing a little research, you can extend those services out based on the vehicle\’s actual needs rather than the needs of the dealership that\’s trying to milk you dry.
The fourth sign is that daily coffee run.
We can easily justify a $6 latte because of how busy we are, not realizing how quickly those daily decisions add up. Consider your daily routine: when you are going by, driving down the street, entering your local coffee shop, and standing in line waiting for your drink of choice, you are spending time on each of those steps. I recommend establishing some level of automation. Automation allows you to make your cup of coffee or tea at home and expedite the process of your morning coffee so that you can use that time in a more valuable area.
The fifth sign is hiring household employees.
I think that this one is kind of funny, but when you have a busy lifestyle and experience lifestyle creep, it\’s easy for people to hire someone to take care of the lawn, wash the gutters, clean the house, take care of the kids, or walk the dog. Lifestyle creep can quickly balloon to paying someone to take care of everything.
Now, it\’s not always a bad thing to have help in certain areas, as long as you\’re intentional about it. For example, a couple of guys came to my front door when I was working one day (I work from home). They proposed to clean my windows inside and out: the screens, the tracks that the windows slide on, everything! Their quote was around $175. I agreed, and it took the guys about six or seven hours to do the job. The total was about 15 bucks an hour when I calculated it later. I hate cleaning windows, and for that time, I spent $15 an hour, which was money well spent in my mind; it allowed me to do something else that I believe allowed for a higher value or higher return. And especially for something I don\’t enjoy!
If you happen to enjoy mowing your lawn or washing your car and it\’s therapeutic for you, that is perfectly fine. I\’m arguing that you can automate the necessary things that make sense but don\’t go out and hire someone for every aspect of life just so you don\’t have to do it.
Come back next time for (Part 2) of Replacing Lifestyle Creep with Margin!
