Over the last several years, I’ve interviewed hundreds of women and their partners to understand how the Wealth Inside and Out® Podcast can make the most significant impact. I’ve also been advising wealthy people for over 35 years. I’ve seen firsthand the impact of living rich, which means high income, high spending, and generally high debt. As well as living wealthy, usually lower income, and more focus on accumulating wealth.
I’ve also met people who don’t fall into either category.
They are currently satisfied and even happy. They share that they don’t desire to have a ton of money.
Interestingly, many of these people have fallen into lifestyle inflation and creep. Today, you’ll learn how to avoid this phenomenon, which can seem like no big deal but can wreak havoc on your financial future.
So, if you want a bright financial future and retirement, you’ll love today’s episode.
Let’s dive in.
Transcript: Wealth Inside and Out® Podcast – Lifestyle Inflation and How it Impacts Your Money
Hi, my name is Annette Bau (bah oo), your Wealth Inside and Out® Podcast host. I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.
I am passionately obsessed with money, mindset, and the intersection of self-worth and net worth and how the two connect and allow us to live fulfilled and wealthy lives on our terms.
From Humble Beginnings
Growing up in the Midwest, I had a dream and began investing $25 a month 35 years ago, and today, I have a multi-million-dollar net worth.
I teach the tried-and-true principles that only someone with over three decades of experience advising millionaires would know.
This podcast is different – it’s about much more than money. We talk about mindset, success, money blocks, worth barometer, and all aspects of money and topics from practical manifestation, real-world how-to, and everything in between with the goal of making your journey easier and more fun.
Think of this as coffee, actually, matcha tea, learning real-world, common sense, money, and life advice from a BFF that you can start applying today. If you want to create a financially free life you love, my friend, you are in the right place.
This is the Wealth Inside and Out® Podcast.
Free Worth Barometer Guide Resource
You can go to https://themillionaireinsider.com/wbg.
The Worth Barometer combines your belief and self-esteem, and it’s the first step to building the confidence you need to create a fulfilled and wealthy life on your terms.
For 40 years, I have studied extraordinarily successful people for over 30 years, and I have been advising them. One of the things that I have been fascinated with is how to secure a financial future, retirement, and life you love. And it all begins with your Worth barometer.
Again, you can go to https://themillionaireinsider.com/wbg.
All materials and intellectual property are copyrighted by MillionaireSeries.com®. The information we provide is not intended to replace any advisor or specialist or provide you with any investment, financial, tax, retirement, planning, or healthcare advice.
All participants agree to hold MillionaireSeries.com®.com and its affiliates harmless or results achieved or not achieved.
Let’s dive into
Lifestyle Inflation, Creep, and Your Financial Future
You will learn:
- What is lifestyle inflation
- How it impacts your financial well-being
- What to do to mitigate and even avoid it
If you want more insight on Lifestyle Creep,
go to https://themillionaireinsider.com/ lifestyle-creep.
That will give you even more background information if you feel you have fallen prey to this or maybe somebody you know because many people are in this boat.
Recently, a peer and I were discussing people who share that they are satisfied, fulfilled, and even happy. They don’t have any desire to change anything.
And the vast majority of them are not saving for their future. Or if they are, they don’t really have a coordinated plan. They may be investing money in their company 401K, but beyond that, they are not saving or investing.
They may have a house, but planning for their future is not at the forefront.
Often, they don’t have long-term care insurance, which is critical. They don’t have the personal investments to sustain their lifestyle.
Women Living in Poverty
What’s interesting is that the phenomenon of lifestyle creep is largely responsible for women living in poverty in retirement.
As you know, of the people over age 65 living in poverty, almost 75% are women. Most were not poor or broke while they were working or married.
So please stay tuned to this and focus on what you want your future to look like so that it won’t be a broke retirement and a devastating financial future. That’s my goal.
This episode applies more to people who either have money or are making a good living but don’t have the right plan.
This is not meant for broke people. It is intended for people who right now aren’t broke.
Those are the people this will most impact if you listen, learn, and apply this insight.
This got me thinking about a couple in one of my workshops several years ago, and both had successful careers.
The husband had been an executive, and they lived in a nice area, a lovely home. They had retirement income from his company.
And they shared that they had never done any planning. The husband had been diagnosed with Multiple Sclerosis. They had no long-term care insurance, and they didn’t have the resources they needed to get him the proper care. And they were devastated. I remember thinking, oh, my gosh, you should have come to this workshop 20 years ago.
Planning for the Future While Enjoying the Present
But before you panic, get depressed, or even beat yourself up, it’s not that you can’t enjoy your life now and even occasionally overindulge. You need to be conscious of your money and make smart financial decisions.
Some people will hear this and think, oh, my gosh, we haven’t done anything. I’m never going to be okay financially. Please don’t focus on that because what we focus on expands.
I want you to focus on what you want. What does it mean to live fulfilled? And a lot of people say, well, I am fulfilled. Okay, that’s great that you’re fulfilled now.
Now, you want to create a plan to continue living fulfilled in retirement. That’s the gap people experiencing lifestyle creep and inflation don’t get.
You want to create a plan so you can enjoy today and tomorrow. So important.
What is Lifestyle Inflation and Lifestyle Creep?
They’re the same thing. They refer to the gradually increased spending as your income rises.
It’s natural to want to enjoy life and spend extra money as you get it. When you get that year-end bonus, you want to buy something.
You must realize that when done in excess, overspending or never taking time to create a plan for your future can wreak havoc on your financial health and destroy any possibility of having a great retirement.
You’ve got to start saving and focusing on what it means to live fulfilled, not just now but in the future. So important.
How does lifestyle creep impact your financial well-being?
When your standard of living increases and improves, you start spending more money. Your income increases, and you are now buying a nicer car, a nicer house, and going on more expensive vacations. It wreaks havoc on your long-term financial needs.
The equation is that higher income equates to higher expenses and often higher debt.
As I shared in a previous episode, a client of mine was a centi-millionaire. This is someone with a net worth of over 100 million.
He said one of the most important things to me, “You can’t get into the make more, spend more trap.”
He didn’t call it lifestyle creep; he just said most people get into the cycle of making more money and spending it.
The goal is to make more money and accumulate more wealth. Oh, what priceless advice. It changed my life.
Let’s review signs of lifestyle creep
Living Paycheck to Paycheck
This is spending all the money you get from your paycheck, leaving no money for saving, investing, or emergencies.
Reduced Savings and Investments
You have reduced savings in investments compared to your peers, who will be okay financially. This means others who have money in the bank and have personal investments.
As you spend more money to live, you have less to invest. And what ends up happening is you just won’t have the money you need in retirement.
Limited Emergency Funds
Most people who are overspending don’t have sufficient funds for emergencies, such as medical expenses, car repairs, or even an unexpected job loss.
This can not only lead to stress, but it can also cause you to be in an unfortunate situation where you’re looking to have to borrow money from someone, and most people don’t want to have to do that, and that person may not even have the money to loan you.
Delayed or Broke Retirement
You need to determine how much money you need in retirement. This requires that you review the numbers and determine the amount. That’s why you want to use a qualified advisor, but you need to decide what that number is and how much money you need to put away to achieve it.
I share with you that a woman does yard work in my neighborhood. She looks about 75 years old and tired. Her tiny Toyota truck looks like it could fall apart.
You wonder if she would have taken the time during her life to put a little bit of money away if she would have a different lifestyle now in what should be her golden years.
What happens with many people as they try to maintain an inflated lifestyle is they turn to credit cards or loans.
As a result, they have higher credit card balances, more debt, less savings, higher interest payments, and less money to invest.
The money they could invest in retirement goes towards their expenses, credit cards, interest, etc.
Lower Net Worth
Typically, you’ll have a lower net worth, meaning the amount of money you have. Assets, less liabilities, equals your net worth.
The lower your net worth is, the less it will grow and the less opportunity you have for compound interest. The problem is it just continues to grow. Meaning you don’t have money.
You are paying interest, and you’re paying more interest. Often, you are using more credit cards. It’s just a never-ending cycle.
Stress and Financial Instability
A lot of divorces and discord occur because of this, especially if one of the partners is a spendthrift.
They’re not concerned about saving money for retirement, which can affect their mental and physical health and relationships. So just be aware of that.
How do you mitigate and even avoid lifestyle inflation?
How to Mitigate and Even Avoid Lifestyle Inflation
These insights will help you get and stay on track to create a retirement and financially-free life you love.
1. Create a Spending Plan
This is the budget where you track what you’re spending. Monitor it and look at the areas where you might be spending too much money. A qualified financial advisor or even a money coach can help you. Start saving and investing early in this area.
2. Save and Invest Early
This allows you to take advantage of compound interest. The sooner you start, the easier it is to take advantage of compound interest. And I will link to compound interest in the show notes. Compound interest is powerful because your money grows both on the principal and the interest, and over time it becomes huge.
People ask you if you’d rather have a certain amount of money or double your money each day. Having your money doubling is almost always better because compound interest is so powerful.
Once you set up a savings account and fund your emergency reserve, then you can start investing. As I shared, always consider working with a registered investment advisor or someone qualified.
3. Set and measure Financial Goals
Your investment and savings goals should focus on short and long-term financial goals.
Set clear goals. Start saving early. Consider buying a home. You might want to plan on starting a family.
Whatever your goals, you’ve got to allocate your resources accordingly.
4. Live Below Your Means
I know, that is so unpopular, right? Because everyone wants to look like they have money.
We recently went out to dinner with some friends, and they drove.
Their car is worth about $150,000. They do have money, but they also have a very high lifestyle. It was so much fun. Hanging out with rich people is so exciting and a dopamine hit.
Instead of spending everything you earn, just try to start living on a little less.
Creating good spending habits is one of the most important steps to curbing inflation and lifestyle creep.
Some people believe that spending more now improves their quality of life. And yet, so many studies show that’s not true. This means that once your basic needs of food, shelter, and medical care are covered, more money does not improve your happiness or quality of life.
You want to ensure you’re saving for retirement and that it’s a priority. It will dramatically increase your odds of experiencing the golden years versus the miserable years.
Right now, we probably still save about 50% of our income. Everything that we earn is reinvested. I know people give me grief, but at some point, we’ll spend it.
But the point is that I do not need more money or more things to be fulfilled. I am fulfilled because I have learned how to manage my mind. And hopefully, you are, too. Even though I have challenges, just like you. We all have challenges and things that we’re going to face.
We must understand that having enough money in the bank and knowing what a fulfilled life looks like allows us to live below our means and not get our dopamine hits or fulfillment from spending money.
It’s also important to allocate raises and windfalls to savings and investments rather than upgrading your lifestyle, which many people do.
You just want to start putting money away. I started investing $25 a month in a mutual fund about 35 years ago. I guarantee that discipline is why I’m where I am today financially. That’s the power of it, but just make it happen.
5. Automate Your Savings
Set up automated transfers to savings and investment accounts, ensuring that you save a portion of your income before you have the chance to spend it.
If you can, set up retirement at work through a 401k. Invest the maximum amount. It is so important.
As you start earning more money and investing more, it will help you live golden years in retirement, my friend.
6. Apply the Three-Day Rule
The three-day rule is if you see something you love and really want it, wait three days before buying it. This applies to online purchases, too.
Ask yourself, “Do I really need it?” And you might reply, “No, but I really, really want it.”
Then, ask if you can afford it. If you are saving enough to hit your retirement financial number, buy it.
If the answer is no, then you don’t. I’ve given you insights on this throughout the episodes, for example, in Episode 27 on Overspending. You can go to https://themillionaireinsider.com/27.
You have to get your dopamine hits from something other than spending money.
Many people are just living on a dopamine hit of spending money. And I get it. I mean, earning money and spending money is such a dopamine hit. Oh my gosh.
Earning and spending money is the biggest high you could ever have. So, I don’t think it’s just certain practices that produce a dopamine hit.
7. Regularly Review Your Finances
You also want to have regular reviews of your finances. And just meeting with somebody who knows what they’re doing and ensuring you’re on track to achieving your goals is really important.
8. Hire a Qualified Financial Advisor or Money Coach
If you need help with your mindset and budget accountability, a mindset coach and a money coach can be great.
If you need help with financial planning or investment planning, you want to hire a qualified advisor.
When you have discipline, you are careful about your financial planning and are focused on what it means to live fulfilled today and in the future. This helps to ensure that you’re not going to run into the issue that the people who have the money and can do something but simply aren’t because they’re thinking, why should I? Everything’s great right now.
Well, that’s great that everything’s great right now. It probably won’t be in 10, 20, 30, or 40 years.
Start looking at the life expectancy of people. If you live beyond age 65, your odds of living for a very long time are extremely high.
So you have to make sure this is a priority.
Recap – Lifestyle Inflation and How it Impacts Your Money
Lifestyle inflation refers to the gradual increased spending as your income rises.
It shows up in a variety of ways. Examples include:
1. Extra money is spent instead of saving it.
2. Retirement is delayed or never happens.
3. Marital challenges and stress in your life. While you may have stress now, you’re likely going to have stress in the future. You might experience depression.
Ways to Avoid Lifestyle Creep
1. Create a spending plan.
2. Start saving early and investing early.
3. Set and measure your goals.
4. Live below your means.
Meaning don’t spend all the money. Aim to save 50% of your income. Most people say I can never do it. Baloney. You can totally do it. I did it, and I still have an amazing life. You can do it too.
5. Automate your savings and investing.
Set up an automatic draft from your checking to your investment account. Apply the three-day rule.
Don’t spend money unless you absolutely have to have the item and you can afford it.
6. Apply the Three-Day Rule.
7. Regularly review your finances
8. Hire a qualified financial advisor.
So, there you have it. All I encourage you to do, my friends, is go and apply it.
Until our next episode, take one action that will help you create a secure financial future and retirement you love.
Follow and Subscribe
If you love the content, please open the Apple podcast on your iPhone. Scroll down to the bottom, click five-star review and leave a review. We really appreciate it.
Click here to follow and leave a review.
Free Resource: Your Next Best Financial Step
Congratulations on taking another step to create a financially free life you love. Are you unsure about your financial future or that it’s in order? Or are you ready to stop worrying about money or possibly the fear of becoming a bag lady and ending up broke in retirement?
If you are ready to know your financial house is in order so you have a secure financial future, please go to https://themillionaireinsider.com/nsf.
And that doesn’t stand for non-sufficient funds.
It stands for Next Step Finance. It’s the next best step of what you need to do so you can avoid an NSF notice in the future. Again, https://themillionaireinsider.com/nsf.
The number of women who were not broke or poor while working or married is staggering. Our mission for The Wealth Inside and Out® Podcast is to ensure you have critical information for you, your family, your friends, and anyone willing to listen to it and apply it to create a financially free life you love.
Again, https://themillionaireinsider.com/nsf. If you love the content, please share it with a friend and also subscribe and follow us so you get notified of future episodes.
Click here to access your Next Step Financial Assessment:
Lifestyle Inflation, Creep, and Your Financial Future.
I’m Annette Bau (Bah oo).
All international copyrights are reserved.
Bye for now.