August 16, 2023 • 22 mins
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.
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Transcript
Episode Transcript
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Speaker 1 (00:00):
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 behindus.
Speaker 2 (00:14):
This is Techie Personal Finance Bootcamp, where
I help tech professionals intheir 20s and 30s balance a
great life today withoutsacrificing their future
possibilities.
I'm your host, lucas Casaris,certified Financial Planner and
founder of Level Up FinancialPlanning, where I help educate,
coach and build strategies withmy clients to help them take
their financial confidence tothe next level.
Duh, duh, duh, duh, duh, duh.
(00:37):
Disclaimer alert thisinformation's for education, so
don't just go use it.
First consult with yourfinancial advisor, because
that's way more legit.
That's it.
That was Orlando Gomez, and youcan catch him in season three,
episode four, on how he brokeinto tech by riding a jingle.
Speaker 1 (00:55):
Hello everyone, thanks for joining me today.
I'm excited to dive into whatthe tech is lifestyle creep.
So if you never heard of whatlifestyle creep is, you probably
heard of what inflation is,right.
So inflation is just kind ofthe natural economic occurrence
where the cost of things go upover time.
Usually it's by small amounts.
(01:15):
The last year and a half, theprevious year and a half, it's
gone up by tremendous amounts.
It's actually coming back intorange, getting closer to the
targeted two to 3% that thegovernments and economies would
like to kind of see.
And so lifestyle creep though.
How does that compare?
Lifestyle creep is your ownpersonal lifestyle inflation.
(01:36):
So it's not inflation beingforced on you, it's inflation
that you're inflicting onyourself, which is always a bad
thing, right.
If you're working hard, ifyou're doing tremendous things,
being rewarded for it throughyour pay, and you start to
increase your lifestyle becauseof that, then perfectly fine.
You just wanna make sure you'reaware, kind of where those
(01:58):
edges are right.
You don't wanna overshoot it.
You don't want to find yourselfin a tough spot where it's like
, hey, I got all this money, butwhere the heck is it going?
And that's what people run intoa lot of times with lifestyle
creep If you're not payingattention, if you don't really
know what's going on there.
So the reason why lifestylecreep can be such a pain in the
(02:19):
butt is because it doesn't justimpact your cash flow today.
So that's your week to week,month to month.
If you're living paycheck topaycheck even though your income
has been increasing the lastfew years, that's probably
because of lifestyle creep.
So your income goes up, youfind ways to spend all the extra
money that you just earned, andso that's lifestyle creep that
impacts NEO on your day to date.
(02:40):
The kind of other side of thething because it is a double
edged sword is you're alsohurting yourself in the future.
So if you increase yourlifestyle expenses and you're
just used to living a certainway, you're just spending a
certain amount of money.
What bet's gonna compound if Um36, I believe, if I didn't get
(03:02):
it during the math right, I kindof lost track after I turned 30
, but somewhere about 36 rightnow, if I were to live another
60 years, any of the purchasesand habits and kind of spending
that I do now, that's all goingto be kind of compounded and
grow over the next 60 years aswell.
So that's a whole heck of a lotof money.
(03:24):
It's all.
I have a couple of dollaramounts and examples I'll use a
little bit later.
And so why does it happen?
I kind of already mentionedwhat typically is one of the
inflows years, which is just theincome going up.
So that's super common.
So income goes up.
You just feel like you couldspend more money and you can,
and you probably should rewardyourself a little bit.
(03:46):
You just kind of have to weigheverything that's going on.
What's, what's your goals,what's kind of your ability to
spend, versus how much shouldyou be saving for the long term?
How much should you be savingfor fun, cool stuff, like
because I've seen people getcrazy raises, their income goes
up and they they spend it onthings that aren't as valuable,
and they're always like oh, Iwish we could go on vacation, I
(04:08):
wish we could do these specialthings for our kids or for
ourselves.
But even though their income'sgone up, they've never allocated
any of that money to thosestuff.
Yet, though they'll buymultiple pairs of shoes,
clothing in my situation.
So one thing that we just gotback from a vacation and the
vacation was planned, we kind ofpre-saved for it, which is all
(04:30):
well and good, but we created anew habit or brought back an old
habit that we said and that'sgoing to a Starbucks getting
coffee practically every day,and so that's some lifestyle
keep that we had as a result ofgoing on vacation, and yet we
were planning on spending allthe money for that, we were
planning on doing the coffee andall that, but when we got back
(04:51):
we weren't planning on keepingthe good times rolling there.
So that's a little bit of alifestyle that just happened,
naturally, and yeah, I need tobring that in or just turn down
some of the other spending thatI'm doing personally or with
family stuff elsewhere.
So other ways it happens is tokeep it up with the Jones's
effect and that's like hey,there's your co-worker or your
(05:13):
friend or your brother orparents got this cool new thing
and, oh, that's sweet, I shouldget one for myself too.
So that's another thing thathappens is you just see other
people getting these Differentthings, upgrading their
lifestyle, and they're like,well, why, why can't I do that?
I probably should do that.
And then you buy things andsometimes they're valuable and
sometimes you're just doing itbecause you think that they
(05:35):
probably would add value.
You don't put too much thoughtinto it.
You have so much money comingin you're not going to miss the
10, 20, 50, hundreds of dollarssometimes that these expenses
they all add up.
And if you're used to spendingthat money, what happens is
you'll find another reason tospend that type of money the
following week, the followingmonth, and so these things do
become habit.
(05:56):
Even though you might not bebuying the same little trinket
or piece of clothing, you justget used to spending those
things.
Mention clothing.
That's one for shop therapy.
A lot of times is when we'restressed, when we're down, when
we're upset.
It's very easy these days tojust jump on Amazon or jump on
(06:18):
anything.
Right now you can jump onFacebook and end up buying
something somehow.
So I know there's Instagram,there's Tic Tac.
All these things are linked toportals where you can just
quickly buy stuff now, and soit'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 definitelysomething where people kind of
(06:40):
find themselves leaning on thatas a crutch to kind of navigate
whatever they're dealing with atthat particular time.
In my family situation, ourfamily has been growing.
So I started my business whenwe had one child, very little,
he was six months old when welaunched Level Up and now I have
four children and so, as youcan imagine, we kind of made
(07:01):
that decision.
But, yeah, we have lifestylecreep.
We're not just supportingmyself, it's not just me and my
wife, it's me and my wife, thena child, then another child,
then another child, then anotherchild, and so these things do
stack up and end up in life.
That's another just natural waythat lifestyle creep occurs.
We're getting them as sportsactivities because they're about
that age, and so you want to bethinking about these things,
(07:24):
planning for these differentthings, because, as they start
to have these different embeddedexpenses with those decisions,
well, we need to makeadjustments somewhere else or we
need to find ways to increaseour income, and one of the
earlier episodes for this seasonmight have been the first
episode for this season I talkedabout well, hey, do you need to
increase your income?
(07:45):
Here's different ways and allthat.
So you can definitely checkthat out.
If that's something you'rerunning to, you're like, hey,
don't really want to change mylifestyle, how can we think
about ideas of increasing yourincome to absorb that and then
hopefully start being able tostart saving for the future as
well.
And guess, one of the problemswith the income going up is it's
(08:07):
hard to do the mental math ofwhat's going on.
So if you get a $10,000 raiseand you're not keeping track of
stuff and you don't realize howthe taxes are reflected and
impacted there, so let's sayyou're not in a super high tax
bracket, but let's say you're inthe 24% tax bracket.
If you get a $10,000 raise,we'll say you live in a state
(08:29):
too that doesn't have any taxesthough, like Texas or Florida or
something like that.
So you get a $10,000 raise thatends up becoming $7,600 is true
money that you actually receiveafter you pay taxes, and that's
not a count for social security, medicare, so there's actually
another 7% that goes towardsthose things.
So you actually have less thanthat.
(08:50):
So that's why it's so tricky tostay on top of this stuff.
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 behindas things end up being a lot
tighter than you thought,because hey, I got $10,000.
I should be able to say yes towhatever pops up whenever it
(09:12):
comes across my radar.
Say yes to it like we just gotnew money, so, and it's very
easy to go over those amountstoo.
So maybe, maybe you are awareof the taxes.
The only reason why we might goover and above that is because
you know what.
You're not keeping track of thestuff you're saying yes to.
You're like oh, I got a raise,that means I can do more stuff.
(09:33):
So as new stuff comes up, youjust keep saying yes without
seeing how it all adds up andcounts towards that same $10,000
.
And it can be any amount ofmoney.
I actually thought the largerthe sum, the harder it is to
keep track.
Right, you get a $50,000 raise.
Yeah, you probably adjust fortaxes.
There's probably like a fewthousand in taxes, probably what
you think.
But yeah, you want to do themath, you want to find out what
(09:54):
tax brackets you're in and howthat's all going to be affected.
So that is really one of thebiggest problems I see is just
not actually staying on top ofwhat that increase means to you
Financially.
I mentioned a little bit as faras well.
It compounds and it doesn'tjust impact your cash flow today
, but it impacts your cash flowand issues in the future,
(10:16):
because you create this newlifestyle and it's spending that
you'll need once you stopearning money.
And so I'll kind of just gothrough an example here.
Let's say, if you went frommaking $80,000 to making
$120,000, and this is kind ofafter tax so if that happens in
the short term, what happens isyou're used to spending an extra
(10:39):
$40,000 more, and if it ends upjust kind of compounding how
much you need in a monthlysituation, so you're used to
spending it you end up spendingall the additional money that
you made.
And then what happens if youget laid off?
We're in a tricky situationright now with the economy where
lots of people are being laidoff, and it's a lot of times
(11:00):
it's very big surprises.
So if you don't have theemergency savings, or even if
you did have an emergencysavings, you're burning through
money a lot faster than you werewhen you had a lower lifestyle.
So if you were only living offof $80,000 before and now you're
living off $120,000, well,you're spending about 30% more
(11:21):
than than you were just theprevious years when you were
living off that lower income.
So that's how it could reallycompress and think even though
you should be way better off,right, you were making more
money.
But if you're not accounted forthings, if you're spending all
that new money, well, there'snothing there to lean on,
there's no safety net for youand you're actually going to
burn yourself into the ground alot faster.
(11:42):
You'll end up relying on creditcards with high interest and it
just becomes such a huge thingto have to pull yourself out of
it.
Once you do land that nextposition, start generating some
income there.
So that's the short term cashflow side of it.
With a real life example, whatif your income increased from
100,000 to 140,000 and you endedup spending all that money?
(12:06):
Well, that's $40,000 a year.
It's kind of a lot, right.
And it's not just the problemwith the short term.
If you're used to spending thatevery single year moving
forward and you need thatlifestyle and retirement in
order to kind of live the samequality of life that you have
now, the additional amount thatyou'll need in investments is
(12:28):
gonna be over $1.2 million.
So just from that lifestyleincrease, 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 accountingfor inflation.
If we account for inflation,you'll probably actually need
$2.5 million just to cover that$40,000.
(12:48):
That's not to cover yourlifestyle and living expenses
before that.
So those are additional fundsthat you need on top of what you
would have needed for yournormal spending before the pay
increase and the inflation andthe lifestyle creep.
So lifestyle creep candefinitely hit you without you
even noticing it because, yeah,you're gonna feel it a little
bit in the short term on themonth of the month basis.
(13:10):
But it's really sometimes thetail end of things when you no
longer have the option to workthere.
It is ageism, from what I'veseen from the clients I've
worked with, where, yeah, onceyou're in your 60s, it's harder
to relocate, find a new positionif you were to be laid off for
any reason.
So some crazy things toconsider and not the most fun
(13:32):
thing to think about where, like, yep, we gotta be more diligent
, we need to be more intentionalwith our money, but we can do
stuff right.
We can control this a littlebit better.
So, early on, get clear withwhat actually adds value to your
life.
So if you know what is actuallygonna be valuable to you maybe
it's travel.
You can pre-save for thesethings.
(13:54):
So if travel is somethingthat's super high on your list
and you want to spend $6,000 ayear on travel, well, that's
easy math.
We divide that by $12, $500 amonth, put it into a savings
account, and so when things comeup, you've already pre-saved
for it.
Because you were pre-saving andsetting that money in a
different account, you probablyweren't spending that money.
(14:16):
What happens is we end up beingspending in this, where
anything we see in our checkingaccount a lot of times most of
us will actually spend all theway up to that limit until the
next paycheck hit.
So if we are sending that moneyoutside of our view, putting it
into a savings account andsaving it in advance, then we
know that the stuff in yourcheck-in is actually gonna be
(14:38):
free rein, and the problem is,if you don't separate it, then
you end up spending all thetravel money.
Travel comes up I still wannatravel that it loves to throw
down the credit card.
We'll figure it out, and sothat'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 alot of people to get those
experiences and it's very easy.
You're not typically travelingevery month or every week, so
(15:01):
let's let's parade this out,start saving it in advance.
If there are other things somaybe it's travel, maybe it's
something else that's importantto you where you wanna take time
and make sure that you haveresources to spend it on
yourself for this particularthing 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,
(15:24):
I don't know what I'm gonna dowith the money, but then say yes
to every possible thing thatpops up on your radar, saying,
hey, I got a raise.
I can say yes to this.
You already know somethingthat's important to you.
So this is gonna fill that slotand everything else you can
save and kind of make sure that,as additional income rolls in
bonuses, stock options, payincreases that you're saving a
(15:45):
portion of those.
And so, speaking of saving thebig thing I get all the time and
it's always gonna varydepending on, well, what work
have you done already, whatresources do you have already
and how well financially haveyou positioned yourself as how
much should you save from theseincreases when you get a bonus,
when you get these pay increaseswhen the stocks do start
(16:06):
vesting, how much should yousave?
So a traditional amount ifyou're already on track anyways,
and you're gonna have a normalretirement age of about 65, if
you're already on track, saving15% should be a safe number to
kind of aim for.
If you're not on track, if youknow like, yeah, I haven't been
doing anything, I was hoping Iwas gonna catch up later on,
(16:28):
well, use these pay raises, thebonuses, the stock, to start
catching up, which means youprobably need to save more than
15% of those funds.
And so the nice thing is, asthose things do start occurring
and this actually happens quitefrequently with a lot of my
newer clients is, yeah, they'renot on track, but they just
(16:48):
landed some new role, they juststarted getting those stock
options vesting where it's like,well, yeah, we can catch up
really quick if we're saving asignificant chunk of it.
So that's one of the beautiesof tech.
That's one of the nice thingsabout kind of investing in
yourself, investing in yourcareer and kind of taking those
strategic choices to move up andadvance in your career is you
(17:09):
could make up for a lot of losttime.
I have people that have justbeen 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 actuallycreate a lot of other cool
opportunities too.
As far as taking sabbaticals,retiring early, doing some fun
tech strategy stuff, it'sprobably more fun for me than is
(17:30):
for my clients, but they'rehappy with the tech savings and
the things we can do.
When you have yourself in aposition where you can kind of
take advantage of that, do spend, do reward yourself and the
best idea for this, too, is alsoto separate it.
So, similar to that vacationfund I mentioned, like let's set
aside, like hey, this is thefun stuff now, and maybe it's
(17:52):
50% of the new money or maybeit's a certain threshold that
where you know like, hey, thisshould be good, I shouldn't need
to go too much crazier thanthis, set that up to be
automatic, that's going intoyour fund account and so when
things come up, it's no longerhey, I got a raise, I should be
able to afford this.
It's I got a raise.
I've been setting this stuffaside so I can just say yes.
(18:13):
When I want to say yes and lookat the account, does the fund
account say that, yes, there'sactually funds there already.
We're not kind of putting thecart before the horse.
We know that things are linedup and you've already been doing
the hard work of putting thatmoney aside so that you could
say yes and actually understandthat, is the money really there?
Is it already taxed and allthat?
(18:35):
So those are going to be thebiggest tips that I could offer
to avoiding lifestyle.
Could you send yourself up tokind of put yourself in the best
position of being in control?
That's something that's veryimportant for me personally and
for my clients is to get clarityas far as what, what's your
situation, what's important toyou, what's valuable to you, and
then here's the actions we cantake, here's the things we can
(18:58):
control and how we can putyourself in a position to be
confident about anything thatcould kind of come down the pipe
here in the future.
So, as you can imagine, ifyou're listening to this, your
income's still entry level,where you're living at the
poverty level.
Yeah, you probably can'tcontrol your financial situation
, quite like I was mentioning,but most of my clients, most of
(19:19):
the people listening to this inmy podcast, are in tech and if
you're not outside of that earlycareer yet, you're going to be
there soon.
So just don't go crazy.
Don't start racking up creditcard debt before you've actually
started making the real techmoney, a lot of the money that
might be here in the future,because I've seen people
(19:40):
self-sabotize themselves whereagain, 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 yourealize when you're paying 20%,
30% on credit card balances andhaving to catch up.
It's painful.
It means if you're not going tomake some smaller adjustments
(20:00):
out, you're going to have tomake big adjustments in the
future.
So making the decision now that,even though you don't have
quite the money to live thelifestyle that you want, find
those small values that you canreward yourself with and then
just be diligent and smart,because the other stuff will
come, you will grow into it inyour career.
You have lots of steps andmilestones that you're going to
(20:21):
be hidden, both career-wise andfinancially, and as you do those
, you'll actually feel moreempowered, more control of like
yes, I actually do have themoney, I'm not putting this
stuff on credit card, I'm notburying myself in debt.
You're going to be able to dopretty much everything you want
to do, a lot of the things thatyou probably could have ever
(20:42):
dreamed of because of the moneyand future earning potential
that you have.
But one thing that willsabotage that is if you were
just going gung-ho right out thebank like, hey, I got a new job
, I'm buying a Tesla.
Well, the Tesla might be morethan your income and they might
approve you for it, but thatdoesn't mean it's a good
financial decision.
And so your seven of yourcareer or your 10 of your tech
(21:05):
career like that's when you'reprobably going to have excess
stuff flying around, has so muchmoney you don't know what to do
with.
But if you do things in theopposite order or are not
patient, not smart with yourplan, and you're going to set
yourself up for a tough, toughhandful of years and it's
painful to dig yourself out of.
So definitely just stay focused, find out what's important and
(21:27):
valuable to you and planaccordingly.
So hope all this was helpful,because there's enough stuff to
be stressed out in the world.
If you can control yourfinancial situation and not put
yourself from that situation,it's going to be so much easier
to kind of navigate life whenyou're not stressed out about
your financial stuff.
So if you have any questions,feel free to reach out.
(21:47):
If you're a client, definitelyreach out.
We can talk through any of thisif you kind of need additional
tips and help navigating yourlifestyle creep.
That just kind of naturallyoccurs and there's nothing wrong
with it.
It's just we want to make surethat you're aware what's going
on and how that impacts you andhow to make informed decisions
so that you're in the mostcontrol, as financially
(22:10):
competent as you can be.
Thanks everyone.
Speaker 2 (22:14):
Thank you so much for listening to techie personal
finance bootcamp.
You can find show notes byvisiting and level up financial
planningcom and finding thepodcast page.
You'll also be able to findstrategy guides, videos and
cheat sheets to help you takeyour financial competence to the
next level.
If you feel this episode hasadded a ton of value for you,
please rate and share this withfriends and colleagues.
Catch you next time on techiepersonal finance bootcamp.
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 behindus.
Speaker 2 (00:14):
This is Techie Personal Finance Bootcamp, where
I help tech professionals intheir 20s and 30s balance a
great life today withoutsacrificing their future
possibilities.
I'm your host, lucas Casaris,certified Financial Planner and
founder of Level Up FinancialPlanning, where I help educate,
coach and build strategies withmy clients to help them take
their financial confidence tothe next level.
Duh, duh, duh, duh, duh, duh.
(00:37):
Disclaimer alert thisinformation's for education, so
don't just go use it.
First consult with yourfinancial advisor, because
that's way more legit.
That's it.
That was Orlando Gomez, and youcan catch him in season three,
episode four, on how he brokeinto tech by riding a jingle.
Speaker 1 (00:55):
Hello everyone, thanks for joining me today.
I'm excited to dive into whatthe tech is lifestyle creep.
So if you never heard of whatlifestyle creep is, you probably
heard of what inflation is,right.
So inflation is just kind ofthe natural economic occurrence
where the cost of things go upover time.
Usually it's by small amounts.
(01:15):
The last year and a half, theprevious year and a half, it's
gone up by tremendous amounts.
It's actually coming back intorange, getting closer to the
targeted two to 3% that thegovernments and economies would
like to kind of see.
And so lifestyle creep though.
How does that compare?
Lifestyle creep is your ownpersonal lifestyle inflation.
(01:36):
So it's not inflation beingforced on you, it's inflation
that you're inflicting onyourself, which is always a bad
thing, right.
If you're working hard, ifyou're doing tremendous things,
being rewarded for it throughyour pay, and you start to
increase your lifestyle becauseof that, then perfectly fine.
You just wanna make sure you'reaware, kind of where those
(01:58):
edges are right.
You don't wanna overshoot it.
You don't want to find yourselfin a tough spot where it's like
, hey, I got all this money, butwhere the heck is it going?
And that's what people run intoa lot of times with lifestyle
creep If you're not payingattention, if you don't really
know what's going on there.
So the reason why lifestylecreep can be such a pain in the
(02:19):
butt is because it doesn't justimpact your cash flow today.
So that's your week to week,month to month.
If you're living paycheck topaycheck even though your income
has been increasing the lastfew years, that's probably
because of lifestyle creep.
So your income goes up, youfind ways to spend all the extra
money that you just earned, andso that's lifestyle creep that
impacts NEO on your day to date.
(02:40):
The kind of other side of thething because it is a double
edged sword is you're alsohurting yourself in the future.
So if you increase yourlifestyle expenses and you're
just used to living a certainway, you're just spending a
certain amount of money.
What bet's gonna compound if Um36, I believe, if I didn't get
(03:02):
it during the math right, I kindof lost track after I turned 30
, but somewhere about 36 rightnow, if I were to live another
60 years, any of the purchasesand habits and kind of spending
that I do now, that's all goingto be kind of compounded and
grow over the next 60 years aswell.
So that's a whole heck of a lotof money.
(03:24):
It's all.
I have a couple of dollaramounts and examples I'll use a
little bit later.
And so why does it happen?
I kind of already mentionedwhat typically is one of the
inflows years, which is just theincome going up.
So that's super common.
So income goes up.
You just feel like you couldspend more money and you can,
and you probably should rewardyourself a little bit.
(03:46):
You just kind of have to weigheverything that's going on.
What's, what's your goals,what's kind of your ability to
spend, versus how much shouldyou be saving for the long term?
How much should you be savingfor fun, cool stuff, like
because I've seen people getcrazy raises, their income goes
up and they they spend it onthings that aren't as valuable,
and they're always like oh, Iwish we could go on vacation, I
(04:08):
wish we could do these specialthings for our kids or for
ourselves.
But even though their income'sgone up, they've never allocated
any of that money to thosestuff.
Yet, though they'll buymultiple pairs of shoes,
clothing in my situation.
So one thing that we just gotback from a vacation and the
vacation was planned, we kind ofpre-saved for it, which is all
(04:30):
well and good, but we created anew habit or brought back an old
habit that we said and that'sgoing to a Starbucks getting
coffee practically every day,and so that's some lifestyle
keep that we had as a result ofgoing on vacation, and yet we
were planning on spending allthe money for that, we were
planning on doing the coffee andall that, but when we got back
(04:51):
we weren't planning on keepingthe good times rolling there.
So that's a little bit of alifestyle that just happened,
naturally, and yeah, I need tobring that in or just turn down
some of the other spending thatI'm doing personally or with
family stuff elsewhere.
So other ways it happens is tokeep it up with the Jones's
effect and that's like hey,there's your co-worker or your
(05:13):
friend or your brother orparents got this cool new thing
and, oh, that's sweet, I shouldget one for myself too.
So that's another thing thathappens is you just see other
people getting these Differentthings, upgrading their
lifestyle, and they're like,well, why, why can't I do that?
I probably should do that.
And then you buy things andsometimes they're valuable and
sometimes you're just doing itbecause you think that they
(05:35):
probably would add value.
You don't put too much thoughtinto it.
You have so much money comingin you're not going to miss the
10, 20, 50, hundreds of dollarssometimes that these expenses
they all add up.
And if you're used to spendingthat money, what happens is
you'll find another reason tospend that type of money the
following week, the followingmonth, and so these things do
become habit.
(05:56):
Even though you might not bebuying the same little trinket
or piece of clothing, you justget used to spending those
things.
Mention clothing.
That's one for shop therapy.
A lot of times is when we'restressed, when we're down, when
we're upset.
It's very easy these days tojust jump on Amazon or jump on
(06:18):
anything.
Right now you can jump onFacebook and end up buying
something somehow.
So I know there's Instagram,there's Tic Tac.
All these things are linked toportals where you can just
quickly buy stuff now, and soit'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 definitelysomething where people kind of
(06:40):
find themselves leaning on thatas a crutch to kind of navigate
whatever they're dealing with atthat particular time.
In my family situation, ourfamily has been growing.
So I started my business whenwe had one child, very little,
he was six months old when welaunched Level Up and now I have
four children and so, as youcan imagine, we kind of made
(07:01):
that decision.
But, yeah, we have lifestylecreep.
We're not just supportingmyself, it's not just me and my
wife, it's me and my wife, thena child, then another child,
then another child, then anotherchild, and so these things do
stack up and end up in life.
That's another just natural waythat lifestyle creep occurs.
We're getting them as sportsactivities because they're about
that age, and so you want to bethinking about these things,
(07:24):
planning for these differentthings, because, as they start
to have these different embeddedexpenses with those decisions,
well, we need to makeadjustments somewhere else or we
need to find ways to increaseour income, and one of the
earlier episodes for this seasonmight have been the first
episode for this season I talkedabout well, hey, do you need to
increase your income?
(07:45):
Here's different ways and allthat.
So you can definitely checkthat out.
If that's something you'rerunning to, you're like, hey,
don't really want to change mylifestyle, how can we think
about ideas of increasing yourincome to absorb that and then
hopefully start being able tostart saving for the future as
well.
And guess, one of the problemswith the income going up is it's
(08:07):
hard to do the mental math ofwhat's going on.
So if you get a $10,000 raiseand you're not keeping track of
stuff and you don't realize howthe taxes are reflected and
impacted there, so let's sayyou're not in a super high tax
bracket, but let's say you're inthe 24% tax bracket.
If you get a $10,000 raise,we'll say you live in a state
(08:29):
too that doesn't have any taxesthough, like Texas or Florida or
something like that.
So you get a $10,000 raise thatends up becoming $7,600 is true
money that you actually receiveafter you pay taxes, and that's
not a count for social security, medicare, so there's actually
another 7% that goes towardsthose things.
So you actually have less thanthat.
(08:50):
So that's why it's so tricky tostay on top of this stuff.
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 behindas things end up being a lot
tighter than you thought,because hey, I got $10,000.
I should be able to say yes towhatever pops up whenever it
(09:12):
comes across my radar.
Say yes to it like we just gotnew money, so, and it's very
easy to go over those amountstoo.
So maybe, maybe you are awareof the taxes.
The only reason why we might goover and above that is because
you know what.
You're not keeping track of thestuff you're saying yes to.
You're like oh, I got a raise,that means I can do more stuff.
(09:33):
So as new stuff comes up, youjust keep saying yes without
seeing how it all adds up andcounts towards that same $10,000
.
And it can be any amount ofmoney.
I actually thought the largerthe sum, the harder it is to
keep track.
Right, you get a $50,000 raise.
Yeah, you probably adjust fortaxes.
There's probably like a fewthousand in taxes, probably what
you think.
But yeah, you want to do themath, you want to find out what
(09:54):
tax brackets you're in and howthat's all going to be affected.
So that is really one of thebiggest problems I see is just
not actually staying on top ofwhat that increase means to you
Financially.
I mentioned a little bit as faras well.
It compounds and it doesn'tjust impact your cash flow today
, but it impacts your cash flowand issues in the future,
(10:16):
because you create this newlifestyle and it's spending that
you'll need once you stopearning money.
And so I'll kind of just gothrough an example here.
Let's say, if you went frommaking $80,000 to making
$120,000, and this is kind ofafter tax so if that happens in
the short term, what happens isyou're used to spending an extra
(10:39):
$40,000 more, and if it ends upjust kind of compounding how
much you need in a monthlysituation, so you're used to
spending it you end up spendingall the additional money that
you made.
And then what happens if youget laid off?
We're in a tricky situationright now with the economy where
lots of people are being laidoff, and it's a lot of times
(11:00):
it's very big surprises.
So if you don't have theemergency savings, or even if
you did have an emergencysavings, you're burning through
money a lot faster than you werewhen you had a lower lifestyle.
So if you were only living offof $80,000 before and now you're
living off $120,000, well,you're spending about 30% more
(11:21):
than than you were just theprevious years when you were
living off that lower income.
So that's how it could reallycompress and think even though
you should be way better off,right, you were making more
money.
But if you're not accounted forthings, if you're spending all
that new money, well, there'snothing there to lean on,
there's no safety net for youand you're actually going to
burn yourself into the ground alot faster.
(11:42):
You'll end up relying on creditcards with high interest and it
just becomes such a huge thingto have to pull yourself out of
it.
Once you do land that nextposition, start generating some
income there.
So that's the short term cashflow side of it.
With a real life example, whatif your income increased from
100,000 to 140,000 and you endedup spending all that money?
(12:06):
Well, that's $40,000 a year.
It's kind of a lot, right.
And it's not just the problemwith the short term.
If you're used to spending thatevery single year moving
forward and you need thatlifestyle and retirement in
order to kind of live the samequality of life that you have
now, the additional amount thatyou'll need in investments is
(12:28):
gonna be over $1.2 million.
So just from that lifestyleincrease, 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 accountingfor inflation.
If we account for inflation,you'll probably actually need
$2.5 million just to cover that$40,000.
(12:48):
That's not to cover yourlifestyle and living expenses
before that.
So those are additional fundsthat you need on top of what you
would have needed for yournormal spending before the pay
increase and the inflation andthe lifestyle creep.
So lifestyle creep candefinitely hit you without you
even noticing it because, yeah,you're gonna feel it a little
bit in the short term on themonth of the month basis.
(13:10):
But it's really sometimes thetail end of things when you no
longer have the option to workthere.
It is ageism, from what I'veseen from the clients I've
worked with, where, yeah, onceyou're in your 60s, it's harder
to relocate, find a new positionif you were to be laid off for
any reason.
So some crazy things toconsider and not the most fun
(13:32):
thing to think about where, like, yep, we gotta be more diligent
, we need to be more intentionalwith our money, but we can do
stuff right.
We can control this a littlebit better.
So, early on, get clear withwhat actually adds value to your
life.
So if you know what is actuallygonna be valuable to you maybe
it's travel.
You can pre-save for thesethings.
(13:54):
So if travel is somethingthat's super high on your list
and you want to spend $6,000 ayear on travel, well, that's
easy math.
We divide that by $12, $500 amonth, put it into a savings
account, and so when things comeup, you've already pre-saved
for it.
Because you were pre-saving andsetting that money in a
different account, you probablyweren't spending that money.
(14:16):
What happens is we end up beingspending in this, where
anything we see in our checkingaccount a lot of times most of
us will actually spend all theway up to that limit until the
next paycheck hit.
So if we are sending that moneyoutside of our view, putting it
into a savings account andsaving it in advance, then we
know that the stuff in yourcheck-in is actually gonna be
(14:38):
free rein, and the problem is,if you don't separate it, then
you end up spending all thetravel money.
Travel comes up I still wannatravel that it loves to throw
down the credit card.
We'll figure it out, and sothat'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 alot of people to get those
experiences and it's very easy.
You're not typically travelingevery month or every week, so
(15:01):
let's let's parade this out,start saving it in advance.
If there are other things somaybe it's travel, maybe it's
something else that's importantto you where you wanna take time
and make sure that you haveresources to spend it on
yourself for this particularthing 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,
(15:24):
I don't know what I'm gonna dowith the money, but then say yes
to every possible thing thatpops up on your radar, saying,
hey, I got a raise.
I can say yes to this.
You already know somethingthat's important to you.
So this is gonna fill that slotand everything else you can
save and kind of make sure that,as additional income rolls in
bonuses, stock options, payincreases that you're saving a
(15:45):
portion of those.
And so, speaking of saving thebig thing I get all the time and
it's always gonna varydepending on, well, what work
have you done already, whatresources do you have already
and how well financially haveyou positioned yourself as how
much should you save from theseincreases when you get a bonus,
when you get these pay increaseswhen the stocks do start
(16:06):
vesting, how much should yousave?
So a traditional amount ifyou're already on track anyways,
and you're gonna have a normalretirement age of about 65, if
you're already on track, saving15% should be a safe number to
kind of aim for.
If you're not on track, if youknow like, yeah, I haven't been
doing anything, I was hoping Iwas gonna catch up later on,
(16:28):
well, use these pay raises, thebonuses, the stock, to start
catching up, which means youprobably need to save more than
15% of those funds.
And so the nice thing is, asthose things do start occurring
and this actually happens quitefrequently with a lot of my
newer clients is, yeah, they'renot on track, but they just
(16:48):
landed some new role, they juststarted getting those stock
options vesting where it's like,well, yeah, we can catch up
really quick if we're saving asignificant chunk of it.
So that's one of the beautiesof tech.
That's one of the nice thingsabout kind of investing in
yourself, investing in yourcareer and kind of taking those
strategic choices to move up andadvance in your career is you
(17:09):
could make up for a lot of losttime.
I have people that have justbeen 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 actuallycreate a lot of other cool
opportunities too.
As far as taking sabbaticals,retiring early, doing some fun
tech strategy stuff, it'sprobably more fun for me than is
(17:30):
for my clients, but they'rehappy with the tech savings and
the things we can do.
When you have yourself in aposition where you can kind of
take advantage of that, do spend, do reward yourself and the
best idea for this, too, is alsoto separate it.
So, similar to that vacationfund I mentioned, like let's set
aside, like hey, this is thefun stuff now, and maybe it's
(17:52):
50% of the new money or maybeit's a certain threshold that
where you know like, hey, thisshould be good, I shouldn't need
to go too much crazier thanthis, set that up to be
automatic, that's going intoyour fund account and so when
things come up, it's no longerhey, I got a raise, I should be
able to afford this.
It's I got a raise.
I've been setting this stuffaside so I can just say yes.
(18:13):
When I want to say yes and lookat the account, does the fund
account say that, yes, there'sactually funds there already.
We're not kind of putting thecart before the horse.
We know that things are linedup and you've already been doing
the hard work of putting thatmoney aside so that you could
say yes and actually understandthat, is the money really there?
Is it already taxed and allthat?
(18:35):
So those are going to be thebiggest tips that I could offer
to avoiding lifestyle.
Could you send yourself up tokind of put yourself in the best
position of being in control?
That's something that's veryimportant for me personally and
for my clients is to get clarityas far as what, what's your
situation, what's important toyou, what's valuable to you, and
then here's the actions we cantake, here's the things we can
(18:58):
control and how we can putyourself in a position to be
confident about anything thatcould kind of come down the pipe
here in the future.
So, as you can imagine, ifyou're listening to this, your
income's still entry level,where you're living at the
poverty level.
Yeah, you probably can'tcontrol your financial situation
, quite like I was mentioning,but most of my clients, most of
(19:19):
the people listening to this inmy podcast, are in tech and if
you're not outside of that earlycareer yet, you're going to be
there soon.
So just don't go crazy.
Don't start racking up creditcard debt before you've actually
started making the real techmoney, a lot of the money that
might be here in the future,because I've seen people
(19:40):
self-sabotize themselves whereagain, 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 yourealize when you're paying 20%,
30% on credit card balances andhaving to catch up.
It's painful.
It means if you're not going tomake some smaller adjustments
(20:00):
out, you're going to have tomake big adjustments in the
future.
So making the decision now that,even though you don't have
quite the money to live thelifestyle that you want, find
those small values that you canreward yourself with and then
just be diligent and smart,because the other stuff will
come, you will grow into it inyour career.
You have lots of steps andmilestones that you're going to
(20:21):
be hidden, both career-wise andfinancially, and as you do those
, you'll actually feel moreempowered, more control of like
yes, I actually do have themoney, I'm not putting this
stuff on credit card, I'm notburying myself in debt.
You're going to be able to dopretty much everything you want
to do, a lot of the things thatyou probably could have ever
(20:42):
dreamed of because of the moneyand future earning potential
that you have.
But one thing that willsabotage that is if you were
just going gung-ho right out thebank like, hey, I got a new job
, I'm buying a Tesla.
Well, the Tesla might be morethan your income and they might
approve you for it, but thatdoesn't mean it's a good
financial decision.
And so your seven of yourcareer or your 10 of your tech
(21:05):
career like that's when you'reprobably going to have excess
stuff flying around, has so muchmoney you don't know what to do
with.
But if you do things in theopposite order or are not
patient, not smart with yourplan, and you're going to set
yourself up for a tough, toughhandful of years and it's
painful to dig yourself out of.
So definitely just stay focused, find out what's important and
(21:27):
valuable to you and planaccordingly.
So hope all this was helpful,because there's enough stuff to
be stressed out in the world.
If you can control yourfinancial situation and not put
yourself from that situation,it's going to be so much easier
to kind of navigate life whenyou're not stressed out about
your financial stuff.
So if you have any questions,feel free to reach out.
(21:47):
If you're a client, definitelyreach out.
We can talk through any of thisif you kind of need additional
tips and help navigating yourlifestyle creep.
That just kind of naturallyoccurs and there's nothing wrong
with it.
It's just we want to make surethat you're aware what's going
on and how that impacts you andhow to make informed decisions
so that you're in the mostcontrol, as financially
(22:10):
competent as you can be.
Thanks everyone.
Speaker 2 (22:14):
Thank you so much for listening to techie personal
finance bootcamp.
You can find show notes byvisiting and level up financial
planningcom and finding thepodcast page.
You'll also be able to findstrategy guides, videos and
cheat sheets to help you takeyour financial competence to the
next level.
If you feel this episode hasadded a ton of value for you,
please rate and share this withfriends and colleagues.
Catch you next time on techiepersonal finance bootcamp.
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