Lifestyle Creep
Before we had our first baby, my wife and I were what’s known as DINKs (dual income, no kids). We were young and liked to have fun eating out, going to movies and events, spending our weekends out of town, and really doing whatever we wanted with our free time because we had few responsibilities outside of our day jobs. We also spent very little time thinking about our finances. We stuck to our rule of not having debt (we didn’t even have a credit card at the time), but other than that we spent most of our money on whatever we wanted with little thought toward the future. It’s easy to do that with two incomes and no kids. We were contributing to our 401ks, and our employer at the time had a generous match, but that was the extent of our investing.
When we decided to start a family, we made the decision that only one of us would remain in the workforce, the other would care for the kids at home. I kept working, and my wife retired from outside-of-the-home work for the time being. While many people immediately think “wow, must be nice”, they didn’t see the sacrifice that went into us being able to live on one modest income. We got on a budget, and it was a tight budget. We cut back on everything. We stopped eating out. We cut back most of our entertainment subscriptions. We sold one car and I drove a rusty, 20-year-old, Toyota 4Runner. We even stopped filling our gas tanks all the way and would stop driving completely if the cars needed gas and the gas money had run out.
A few years later, and luckily a few salary increases later, we had our second kid. Our lives looked completely different – we had replaced the old rusty 4Runner with my dream truck (a used, high mileage, Tacoma), we filled our gas tanks when we needed without wondering if we’d have money left in the bank, we ate at restaurants once a week or so as our budget allowed. We went on vacations once or twice per year. We weren’t living lavishly by any means, but we were comfortable. We had enough.
Our oldest child will be 5 this year, and over the years we’ve been able to increase our income enough that we have to check ourselves occasionally on lifestyle creep. Lifestyle creep is the concept that as you earn more, your living expenses raise right along with your income. You get a raise, so you get a new car. You get a bonus, so you go on a vacation. You get a promotion, so you buy a bigger house. This is a perfectly natural thing to do and is not always bad. Sometimes your car does need to be replaced. Sometimes your house is too small to meet your growing family’s needs. But oftentimes, you are on the hedonic treadmill that many get caught on and you are only inflating your lifestyle because you can, not because you need to or should. You never get ahead because you’re constantly trying to keep up with a more expensive lifestyle.
We have considered replacing our 8-year old compact SUV with one of those nice 7-passenger SUVs that everyone seems to drive these days. Would it be convenient? Sure. But we only have two kids, and we all fit perfectly in the compact SUV we have, plus it still has relatively low miles and is safe and reliable. We’ve considered looking for a new home with larger bedrooms, bathrooms, and a 3-car garage. But for now, we’ve decided to stay put in our home with plenty of room for the four of us and our dog. I would love to replace my 20-year-old motorcycle, but the one I have is enough of a luxury already.
We do not live like monks. We are not the people who save 75% of their income, don’t buy anything, don’t go anywhere, and put off living until some future point in time. However, we do believe in living below our means, and making sure that lifestyle changes stay below our means at the time. We combat lifestyle creep by first: evaluating financial decisions as needs vs wants, second: weighing the pros and cons of those decisions, and third: considering alternative approaches.
We believe those three steps can help people combat lifestyle creep and assist in continuing a fulfilling life that remains below their means.
Inflation gets a bad rap, and rightfully so, but I think lifestyle creep might just be an even bigger factor in our personal finances. We hope you enjoyed this article, thanks for reading!