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BIZ Academy Podcast
Hosted By: Wyatt Yates

Money Myth: Beware of Lifestyle Creep



In this episode, I discuss how we all have fallen victim to lifestyle creep in some way. What is lifestyle creep? How can you avoid and minimize it? Listen to find out.

Action Steps:
Identify areas in your spending where you have fallen victim to lifestyle creep. What changes can you make to either eliminate or reduce these?

Episode Transcript:

Wyatt Yates Host 00:00 Money doesn't have to be complicated. You can achieve financial independence. This podcast gets to the truth behind the money mess you hear from your grandma, your broke uncle, the latest social media influencers and the so-called money experts. Welcome to Money Myths with your host, wyatt Yates. This week's myth is beware of lifestyle creep. 00:28 So first let's look at what lifestyle creep is. So lifestyle creep happens when you increase your standard of living or improve your standard of living as your income goes up, as your income's rising. What used to be a luxury now is a new necessity. So examples of lifestyle creep. So you get a raise or a new job and all of a sudden you're looking at upgrading your home. You know you make rationalizations on why you need the home, whether it be you need more room or this isn't our forever home and you use the opportunity of having this new promotion or new raise Be a reason why now we can afford it and we're going to upgrade our home. Or you can do this with a vehicle, right? So you see people that just got a new job or a raise or promotion all of a sudden go out and buy a new vehicle and they're upgrading their vehicle, or people do this in other ways as far as you're going, finding yourself going out to eat more or to more expensive restaurants, or you can do it with consumer goods, with your clothing or things related to your hobbies, or spending money on a vacation that you've always wanted to do, and you get this promotion or raise and you use that extra money to pay for those types of expenses and those luxuries or that vacation, or to justify why you do that home. 02:07 And this is a very common thing that a lot of people fall victim to, and this myth is right. You need to be aware of lifestyle creep. We will rationalize things. We work hard, we deserve it or now we have that extra money and we really can afford it. But if you do things out of order and you don't understand what your money really should be doing and have financial goals, you'll fall victim to this and you're going to find yourself needing a higher and higher income to support your lifestyle. And you'll find yourself or your money is going to other people and not to you. You're, in essence, keeping up with the Joneses. 02:59 This is why you see people with 100, 200,000 plus incomes that are still living paycheck to paycheck because they've fallen victim to this lifestyle creep as their income has increased. You're surrounded by people in your income bracket more often, right? So the people we associate with typically are most likely mirrors of yourself, whether it be with finances or with your beliefs and values. And as your income goes up, you're going to be associating with people with higher incomes. You're going to see what they're spending money on and you're going to fall victim to this lifestyle creep if you don't set boundaries and goals in place. And this is when you have people that all of a sudden, they have a hit in their income or something changes and they've increased their lifestyle to match what this income they thought they were always going to have. Then they, if they have something that happens, they're unable to meet their obligations and you see them have a major financial stressor in their life, and there's been numerous articles on this over the last several years. You mean, you just do a search and you'll be able to see articles of examples of people that are making 100,000, 200,000 and live in paycheck to paycheck or can't meet their financial obligations. I have clients that meet that scenario where they're make really good money but they're in debt up to their eyeballs and they can't figure out how to get out, and it's. They've fallen victim to this lifestyle creep, and it's very easy to do if you're not on a plan, so you can see where making good money and still living paycheck to paycheck is not a great thing and not something that you would strive for and say that's a goal of mine, right. But it can happen, and it does happen more often than not. So why is lifestyle creep bad? 04:58 Putting your money into things that aren't investments and don't help you achieve the ultimate goal of financial independence, you are, in essence, paying everybody else before you're paying yourself. So to achieve financial independence means you earn your investments, whether that be real estate or a Business or stock market or bonds whatever that is generates income and cash flow when you're not working. It's called passive income. So your goal for financial independence is your investments have to generate enough cash flow and enough income to Replace your current income, or at least replace, to where you want to have to work, and you're only working because you want to work. That's the ultimate goal with financial independence is I'm I'm making money when I'm not working and I don't have to work if I don't want to. So it's a great place to be and it should be everybody's ultimate goal. I mean, that's what your goal with retirement is. Retirement is having reached a number in your investments to where you can pull off the earnings of those investments to be able to live and Feed yourself, house yourself and enjoy your life. 06:20 So when you let lifestyle creep come in and it you upgrade your home or your car or Consumer goods or go on all these vacations, you are paying everybody else and you are not paying yourself and you're not increasing your passive income. You're earning on your investments. So it will take longer to achieve financial independence, if you're even able to do so. So that's why it's bad. You always want to pay yourself first. 06:50 So now that we you know what lifestyle creep is and we've identified that it is bad, how do we avoid it? So there's a few things. You're never going to completely avoid it. You're gonna have the thoughts come in your head. You're gonna have that self rationalization. It happens to everybody. 07:06 But the big thing is you got to be able to identify when it's happening. And how do you identify when it's happening? Well, the first thing is you have to have financial goals and a plan. When you set clear financial goals for yourself and your, your family, and you have a plan that you're following. It's really easy to identify when something is Deviating from that plan or it's not gonna put you on track towards those financial goals. So the first step is to always have financial goals and have a plan with your money and your personal finances, because then you can identify. When you're Talking about upgrading your home or getting a new car or going on that vacation, you look at what it's gonna cost. Is it in line with these financial goals and the plan we set out? 08:04 The second thing is To always allocate I like to say, at least a third of what your increase in income is Towards saving, investing. Even better yet, put all of your increase in saving investing. So anytime you get a raise, promotion, new job, where your income is going up, make sure at least a third of what that increase is now gonna go to pay yourself. You worked hard for that increase. You need to pay yourself before you pay other people. So always allocate a good chunk of any increases you get, preferably a third or more to yourself and saving, whether you're trying to save for your rainy day emergency fund or investing for retirement or into other businesses that you're investing in. So always allocate a certain percentage to that, and the big chunk of it should be to that, to where you're paying yourself first. 09:08 The third thing to do to avoid this lifestyle creep when you're getting pay raises or increases is to not allow yourself to upgrade your home, your vehicle or any other thing associated with your lifestyle and discretionary expenses. Do not allow yourself to upgrade that until you've met the following criteria. So first, you have no debts except your mortgage. You may have a mortgage, which is fine, but you have no credit card debt, consumer debt, student loans, medical debts, any of that. All of your debts are paid off, excluding your home. And then the second criteria is you're able to save and invest at least 20% of your income into retirement accounts or investment accounts. They don't necessarily have to be in a retirement vehicle. 10:05 The end goal with personal finance is achieving financial independence, and to do that you have to pay yourself and invest money to generate passive income. So until you're able to do at least 20% of your income, I'm not upgrading my home. I'm not upgrading my vehicle. That doesn't mean like my vehicle breaks down, I need to get a new vehicle. I can't get a new vehicle, I need to get a vehicle to replace it, but I'm not upgrading it. From my typical $15,000, $20,000 vehicle to, all of a sudden, now I'm buying a $50,000, $80,000 vehicle. You're not upgrading your vehicle or your home or your lifestyle until you've paid off all your debts and you're paying yourself at least 20% of your income. 10:54 If you can follow those, follow a plan, allocate your increases to yourself, towards saving and investing, or, if you're in debt, going to pay all your debts off and then making sure you don't do any lifestyle upgrades or fall victim to lifestyle creep until you've paid off all your debts, excluding your mortgage, and you're able to pay yourself at least 20% of your income. Know that you're going to be able to identify when you have these rationalizing thoughts of I deserve it or I worked hard and this is going to treat myself. When you have those thoughts and you follow a plan, you'll identify when you're just falling victim to the same thing everybody falls victim to. Everybody has these thoughts. We all wish we had more than what we currently have, but if you stick to your plan and make sure you're paying yourself first, you will be able to overcome what happens when you fall to this lifestyle creep. You're not going to be that person that's making $100,000, $200,000 or more a year and can't keep up with your bills or live in paycheck to paycheck. You're going to be able to achieve financial independence a lot faster than the majority of people when you pay yourself first. That is the end goal. The end goal with personal finance is always to reach that financial independence to where you're generating that passive income and your money is working for you when you're not having to work. 12:31 So for the action steps this week, there's two things. First, I want you to identify areas in your spending or in your budget where you've fallen victim to lifestyle creep. We all have these. It just depends on what type of level whether it's upgrading your home or I find myself eating out more now but we all have areas in our spending and in our budgets where we have fallen victim to lifestyle creep, no matter how hard we try. So identify them, write them down and identify what areas you've fallen victim to this lifestyle creep. Then the second step is to think of what changes you can make to either eliminate these or to reduce these. 13:22 Now, obviously, if you fall in victim lifestyle creep and you upgrade your home before you should have or upgrade your car before. You should have cars a little easier, homes a little harder. You may not be able to completely eliminate those versus. I find myself going out to eat more often or to more expensive restaurants or splurging on vacations more than what I should be. But look at what you identified in step one and then step two how can you eliminate or reduce them? There's always areas that you can at least reduce, sometimes eliminate. Now, if your home is, you fell victim on the home side, which is very common, you know. I'm not telling you to go out and sell your home today, but you're going to have to cut another areas to offset for the bad decision you made and you're going to have to figure out how to increase your income to where you can hit that. 15-20% of your money is going to pay yourself and you have no other debts except your mortgage. So first identify where you've fallen victim to this lifestyle creep and then brainstorm some ways you can either eliminate or reduce those expenses in your monthly budget that you're doing. 14:39 Thanks for listening. Want to achieve financial independence? Go to ruggedfinancialcom where you can download my free PDF of the 12 things to do to win with money, and you can also sign up for my weekly money tips emails, where I cover the same tips and tricks and advice I walk all my clients through so you can begin your journey to financial independence. Thank you for watching and listening to this episode of the Money Myths podcast. Please do me a favor and, if you found this episode interesting, subscribe to the podcast so you can make sure you get all the future episodes. Also, leave a rating and review so you can help us grow this podcast so we can leave more people to financial independence. And, lastly, please take a screenshot of the episode, share it on your social media channels and tag us using at ruggedfinancial. We will see you later.

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