Articles

I’m talking about Lifestyle Creep. That’s where your Standard of Living increases as your Discretionary Income rises. Former luxuries are now considered necessities.

LIFESTYLE CREEP EXAMPLES

That occasional Starbucks Latte becomes a daily habit. You begin eating out more frequently instead of bringing your lunch most days. You buy a bigger house because you got a raise.

Lifestyle Creep makes it harder to get out of debt, save for Retirement, or meet other Big Picture Financial Goals. It’s what causes people to get stuck in the Rat Race just to pay the bills. Lifestyle Creep can rob you of the cash you might need to fall back on when an unforeseen setback like a medical bill or job loss arises.

WHY WE DO IT

We tend to increase our spending each time our income goes up because we believe that the additional goods and services we are purchasing will make us happier. Often, those purchases don’t make us happier. A better option would be to work toward Financial Independence by saving more.

The cumulative impact of Lifestyle Creep is significant because increases in Lifestyle Spending not only means there’s less money to save, but also that higher Lifestyle Spending means we need even more to Retire in the First place!

HOW TO AVOID LIFESTYLE CREEP

1. Increase your Contribution Rate to Retirement Accounts like IRA’s, 401k’s, 403b’s. Sign up for your plan’s Auto-Escalation feature. Money not seen is not missed.

2. Save Half of any Raises or Bonuses in your Retirement Accounts.

3. Save the maximum amount allowed in your Health Savings Account.

4. Set a Savings Challenge for yourself. Make Saving a “Point of Pride.”

5. Track your Expenses.

Avoiding Lifestyle Inflation can mean achieving Financial Independence at a younger age, having the Financial Flexibility to choose a Dream Job over a higher-paying option, and Retiring Early! After all…Who wants a Creep in their life?

So, what do you think? Where do you see Financial Creep in your life? How do you combat it?

My dad used to tell me about the 4 ways to become rich…

1. You could inherit it.

2. You could steal it.

3. You could win it.

4. You could live on less than you earn and invest the difference.

Most of us cannot count on the First 3, so choice 4 makes the most sense. However, many of you will never reach Financial Freedom. Here’s why.

THRIFTY MINDSET

You have not yet adopted a “Thrifty Mindset.” What are you willing to give up to reach Financial Independence? Our Instant Gratification Society tells us “To consume more right now.” But, the path to Financial Freedom requires delaying that gratification…sometimes for decades.

I am not advocating becoming a Miser. Merely, living below your means. Paying yourself First. Paying off debt. Investing wisely. The “Secret Sauce” is adopting a frugal lifestyle where you combine Financial Education with small Behavioral Changes.

30 DAY CHALLENGE

How about giving a “Thrifty Mindset” a 30-day test drive? Document your spending for a month. Pause before each purchase. Ask yourself, “Do I really Need this? Or, do I merely Want it?” Is there an Emotional Component behind your desire to buy this item? Figure out what truly brings Joy to your life.

Eventually, you will arrive at a Tipping Point where Delayed Gratification becomes a Point of Pride…an Achievable Challenge. You will be on the Freeway to Financial Freedom. Enjoy the Journey.

So, what do think about your own path to Financial Freedom?  Please share your thoughts…

When can I retire? That was the most popular question I heard from clients during my stockbroker/investing career. The answer is…It Depends…

It depends on how you prepare for your retirement. It also depends on how you measure readiness. Here are the levers you can pull to speed up your retirement plan.

1. Be Thrifty. Live a frugal life. Spend your money wisely. Read “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. Don’t confuse Wealth with Income.  Be Debt Free.

2. Be a Saver. Don’t save what is left after spending. Instead spend what is left after saving. Make saving an automatic habit. As my Dad used to say: “ Save as much as possible, as soon as possible, for as long as possible.”

3. Be Accountable. Prepare a budget. Keep track of saving and spending. A simple Excel spreadsheet works fine. Dave Ramsey has an excellent budget tool. Some folks like Mint.com.

4. Be an Investor. To become Financially Independent you need your money to work for you. To become a savvy Investor, you need to read and understand personal finance. Some of my favorite authors: Howard Marks, Ben Graham, John Bogle, William Bernstein, Jonathan Clements, Scott Burns. Investors should remember that Excitement and Expenses are their Enemies. Low cost Broad Based Index Funds typically earn higher returns with lower risk than managed investments over an Investor’s lifetime.

5. Be humble. If you get too greedy you may discover that “Pigs get fat…Hogs get slaughtered.” Know that you will make mistakes. Learn from them. You only have to do a very few things right in your life so long as you don’t do too many things wrong. Know the difference between Price and Value. “Price is what you pay, Value is what you get.”

6. Be Generous. Be generous with your time, your praise, your wealth. Generosity leads to Prosperity.

7. Be a Student. Keep learning about personal finance. Ask questions. Think for yourself. Ignore the “Financial Pornography Pundits” on TV, Radio, & at the Newsstand. Remember, if you do what everyone else does…you will get what everyone else gets.

So what do you think? Do you have any other ideas for your Retirement Roadmap? Please share them with us.