I’ve heard and read the term “Lifestyle Creep” a lot in my research on how I can retire early from teaching (if need be). It’s an important topic to understand so we can achieve our long-term savings goals. Lifestyle creep is the gradual increase in spending that happens alongside a person’s gradual increase in income. The net result is that we are spending more money instead of saving more. Let’s look into what this means for our lives and how we can use this knowledge to help us save more of our hard-earned money.
What is Lifestyle Creep?
Don’t judge, but I am still a fan of the movie Dumb and Dumber. I was 14 when it came out and Jim Carrey was absolutely the hottest star in comedy at that time. Thinking about it now, it’s almost a statistical impossibility that I NOT like the movie. I still like music from that age as well… We were impressionable at that age!
I’ll stop rationalizing.
The reason I bring it up is that I can think of no better portrayal of lifestyle creep in cinematic history than the one in that movie. And it’s neatly packaged into a 2 minute clip! Brilliant!
In case you need context, these two dumb/broke guys, who are traveling across country in search of a girl and a better life, come across a briefcase filled with cash. This scene right here (and embedded right below) depicts lifestyle creep perfectly.
Go ahead and watch! You deserve a break!
You see how they immediately increased their spending to match their increased wealth? That’s what we mostly tend to do as well (in a much more gradual and far less extreme manner). When we earn more, we have more to spend. And that’s exactly what we do. And that is lifestyle creep in a nutshell.
In fact, there is even a psychological term for this. It’s called “The Diderot Effect”. I learned all about this and so much more by reading Atomic Habits by James Clear. I wrote a review on this book, and talked about the profound impact it can have on you personally, professionally and financially.
If you are interested it’s called Baby Steps to Success: An Atomic Habits Book Review.
Why Let Lifestyle Creep in…
Like so many other things in our society, Lifestyle Creep is completely normalized. It is why individuals with 6-figure incomes still live paycheck to paycheck. We connect more stuff and better quality stuff with a better life. And in some cases that can be true, but for most of it, I would say it’s not true. The end result is that the lifestyle creep that takes place over time eats away at our savings.
This can have huge ramifications down the line when it comes to our savings. If you haven’t already, check out this post on Drastically Improving Your Savings Rate. It lays out the argument for why we should all be doing this and how significant it can be for our long term savings goals.
Recently, we talked about the overwhelming prominence of buyer’s remorse and how we regret a large majority of the purchases we make. But it’s also natural to want to make improvements to your lifestyle.
So what do you do with that yearly raise? Can we have both? Can I improve my savings and upgrade my life a little too?
I think so.
First we should consider some other important factors regarding Lifestyle Creep so that we can better prevent it and hold onto our hard-earned money!
Understand Cost of Living Raises
To better stave off Lifestyle Creep, we should make sure we solidify our understanding on these “cost of living raises” we get annually.
A true cost of living raise is designed to counterbalance the rates of inflation that naturally occur slowly over time. Inflation is the gradual rise in prices for goods and services over time. It can also be thought of as the slow devaluation of your money over time. A good example of inflation is that classic grandpa telling us that when he was young, gas was a nickel!
Whatever the case, most teachers have a cost of living pay bump from year to year. That can feel great because it feels like a raise. But really it might just cover that almost imperceptible rise in prices that takes place yearly. In some cases, it can actually damage our savings because we increase our spending even more to match our perceived “raise”.
Teachers often also get a pay bump for years of experience. All told, these two pay hikes might be more than the rates of inflation. If not, or if it comes out neutral, don’t treat it like a raise and increase your spending. That’s where we can get into trouble.
If you do end up making more than about 3% (typical rate of inflation) then let’s come up with a plan to get something now and make sure we are better taken care of later.
Save More and Creep a Little
Confession time. You know how “What was your first cd?” is a question you hear from time to time? Well, mine was TLC Ooooooohhh…On The TLC Tip. (And yes I counted the number of O’s in Ooooooohhh. Seven.). Very catchy cd. Still, it’s not my favorite question to answer and I usually exhibit questionable behaviors to avoid answering it…
The reason I bring it up is, because I remember that later on TLC had a hit song called Creep, which has nothing to do with lifestyle creep… I don’t know where I’m going with this… Maybe I’m just showing you how I think and you can have an embarrassing factoid to hold over my head forever and anon?
Back to the point! I’d say, if you want to, you can let lifestyle creep seep in a little, but not before you set aside your extra savings. Make sure you have given a significant bump to your savings and then you can spend the rest guilt free. You’ll already know you’re taking care of your future self so you won’t have to stress about it.
If that still doesn’t satisfy your needs in the immediate future, then we need to get our hands on some more money don’t we? First, I’d ask you if feel like you’ve made an honest go of saving? There are vast sums of money to be had by changing a few habits. Try reading a post I wrote that can slash your outgoing expenses very significantly. It’s called Simple Steps to Big Savings and it helped me improve my savings rate from 10% to 40%.
If you’ve got your saving to a good spot, then we’ll just have to get that money elsewhere won’t we? I have some very innovative ideas below!
Earn More Money – Jump Lanes
“Gee, thanks. Why didn’t I think of that? Very Innovative…” you mutter. Wait, is that sarcasm I detect? Fair enough! But if we are not treating a cost of living bump as a raise, then we have to get this extra money from somewhere right?
By far my favorite way to make more money is to do what we call a “lane jump”. This is when teachers earn a certain amount of graduate credits so as to move “lanes” (or columns) on a pay scale.
The logic for most school districts is this: “More highly educated teachers are better teachers and better teachers should be paid more.” I understand the logic, but it’s flawed. I know absolutely amazing teachers that simply haven’t had time to do a lane jump because they are so busy dedicating their time to their craft (thus making themselves better teachers), but I digress…
If you haven’t already, find out what your school districts pay scale (or “salary schedule”) is. In many cases, it can be many thousands of dollars more per year for the rest of your career. That can be huge savings!
As always, if you do make a lane change, your first priority (in my humble opinion), should be to set aside a large chunk of that for savings and take care of your future self!
And if you feel strapped for time, Mr. D. has got you covered! I really like these online courses at webteaching.com.
If you get the flex courses, you can do them on your own time (you have a year to complete them) AND earn graduate credits from UCSD. Best of all you earn 3 and1/3 credits per course! That means every 3 courses you complete earns you 10 graduate credits. They are relatively cheap (I usually wait for a sale to get them at under $300 per course), they are much less time consuming than typical courses, and they keep their courses topical.
Note: This is NOT an advertisement and I will NOT get paid a dime if you choose this course. I just appreciated the streamlined package they offer and wanted to share it with you. As always, just make sure your district will accept these credits. Both districts I have worked for have accepted them no problem. It’s UCSD after all…
If you do end up using them, reach out and let me know! Jumping lanes can be an excellent way to earn some extra money for savings AND have a little extra for yourself!
If you were a new teacher and you ended up getting a Master’s very early on, it’s not unreasonable to think that your pay bump would be north of $3,000. And let’s say you set aside $2,000 per year for savings/investing…
That extra $2,000 per year, invested over 30 years of teaching, with an 8% rate of return (the market’s average rate of return since it’s conception), would get you over $260,000 in your bank account by the time you hang up your key card (retire).
And that’s just from a lane jump! Imagine what happens if you do a few lane jumps and combine it with all your other savings? The results become life-changing.
Summer jobs and side hustles are other options for more income that some teachers like as well…
So let’s keep finding more ways to keep that Lifestyle Creep at bay and keep our savings growing and flourishing!
Quick Tips to Block Lifestyle Creep and Save More
Here are a few quick ways I try and consider when trying to reach my goals in the now without sacrificing my long-term goals. If you’ve read other posts, you know I haven’t always been successsful. At one point I was not only penny wise and pound foolish, as the saying goes, but penny foolish and pound foolish.
As you might expect my savings did anything but flourish. The only thing really flourishing was my lifestyle creep.
Here are some tips and mindsets that really helped me keep Lifestyle Creep at bay.
Quick Tip #1 – Be Intentional About Purchases
In the post I did about buyer’s remorse (link above), we saw that most of us feel buyer’s remorse for a majority of the purchases that we make. So, by being intentional about what we buy, and trying some of those strategies to avoid impulse purchases (like putting it on a list for a few days before purchasing), we can nearly eliminate buying things we’ll later regret and dedicate the money to savings instead.
Quick Tip #2 – Reassess Your Goals
As we age our needs and wants change. When I was 10 I think my life’s goal was to collect as many sports cards as I could. It stands to reason then, that your goals for items and housing might have changed as well.
Take a hard look at those goals and make sure it is still something you really want before you spend that hard-earned money on it. Sometimes we get ideas in our heads from when we were younger and they don’t mesh with what we are looking for in our present lives. Recognizing this can be fundamental in avoiding large expenditures that seriously hamper our long term savings goals.
This ties in well with our next tip.
Tip #3 – Be Wary of Major Purchases
Maybe when you were younger, you decided that you always wanted a boat. Who can blame you? And with summer’s off, the plan fits. I’m even talking myself into one right now as I write this…
But even a very basic model of a new speedboat costs $20,000. And let’s be honest, most likely we’re not getting the base model. Then you have to get a trailer to move your boat, and gas and life vests and all the myriad things a boat requires. That costs money too. Is it too unreasonable to think you are spending $30,000 on this boat and everything else associated with it? I don’t think it is unreasonable.
Using the 20/40 rule (I made this up and wrote about it in my 5 Money Saving Tricks that Really Work and am really pushing it. Basically you multiply the cost times 20 to see how much you would have 40 years down the line if you invest the money instead), we see that instead of spending $30,000 on that boat now, you could have over $600,000 in 40 years. And realistically, you are taking out a loan for the boat which charges interest. So actually, it would cost you way more than $600,000 down the line. Think about that!
You get the idea. These big purchases can have huge ramifications down the road. So, before you get that boat, new car, new addition to the house, remodeled kitchen, or whatever else, make very sure that you really, really have to have it. As we see, it will cost you way more in savings than the actual sticker price you are paying.
And getting back to the boat. Before you buy it new, maybe you want to explore other options like buying used? If it were me, I would want to avoid that whole hassle of cleaning/maintaining/fixing. For my money, I’d be planning to rent a boat a few times per summer. That way I get my fix, save most of my money, and avoid all the extra work that comes with it.
So before you make that major purchase, I think it’s worthwhile to assess how much you really want/need it, explore alternatives, and consider the effect it will have on your long term savings goals.
Tip #4 – See if You can “Hack” a solution
Some day I’ll do a series on some of these life hacks. For now, I’ll just say this: There are so many life hacks that can save you real money in just about any subject area you can think of.
Whether it’s saving on your kid’s college education, saving on contractor fees, or going to Disney World for free, there’s a hack for it. I heard about most of these by doing my deep dive on the ChooseFI podcast. There were hundreds of ideas that I have written down and will eventually share (I hope).
For now, as an example, let’s look at taking a vacation. Mind you, I have not tried this yet. When I do I will tell you! But there is a preponderance of evidence that this actually works and I absolutely believe and trust it.
For vacations, there are credit cards that offer very significant travel rewards programs. If you use these cards to make purchases AND you are savvy about how you book your trips, you can end up taking valuable vacations for free.
It looks like the average cost for a week’s vacation for a family of 4 is about $4,500. If you do that every year, that amounts to massive amounts! But if it’s free, you can get that well-deserved vacation AND save your money!
These cards offer a major sign-up bonus that far outweighs the annual fee (about $95) and easily surpasses the 1 – 2% savings you get from a typical credit card.
If you are interested, here’s a link to ChooseFI’s travel rewards program. I trust these guys and have listened to hundreds of their podcasts. But you should make sure you trust them too. Also, be sure you understand HOW to maximize the savings. There are tricks that they will illuminate. Finally, make sure you have your credit card debt paid off before you open a new account.
Near-free vacations is just one example of a hack to save money. There are thousands of them. Before you spend large amounts of money on something, always look into alternatives/hacks to get similar results at a fraction of the cost!
Lifestyle Creep – In Summary
Lifestyle Creep is an all-too-common phenomenon whereby we end up increasing our spending to match our increase in pay. Understanding that some of that money for pay increases is there to offset the cost of inflation is important.
Then, making sure that we dedicate a healthy chunk towards savings should be our first step before allowing ourselves to increase our spending.
Finally, by learning to master our savings, finding other ways to improve our income and using some tricks to avoid incurring big debts, we can knowingly allow a little lifestyle creep into our lives without sacrificing our long-term financial goals.
If we do it right and are intentional, both things, lifestyle and finances, can actually be augmented simultaneously!
Thank you for reading! If you have any thoughts/questions then I’d love to read them below in the comments. You can also let me know what your first cd was. Can you beat mine? As always, you can also feel free to contact me!
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