Old Money vs. New Money – Lifestyle Creep

First, my apologies for the delay in posting over the past two weeks.

I’ve been working on a new book as well as dealing with some family business. A close friend here in the neighborhood had surgery, as well, and my wife and I have literally been his right hand for a period of time (tendon and bone repair in the wrist).

Far from a chore, it’s been fun to see our dear friend Pepe more often. As he’s been so generous and kind to us since we arrived here in 2017, it was great to have the chance to reciprocate in any small way. He is out of his cast and on the mend now, I’m happy to say, and life is returning to normal for all of us.

The combination of these three responsibilities, however, did leave me short on time and time to think, two essential elements for a relevant and timely post. But I’m back, and I hope all of you are safe and well.

I wanted to circle back to a topic I may have touched on previously. It’s been referred to as ‘lifestyle creep’, and it afflicts even the most diligent of us. The concept is that as our income rises, our lifestyle ‘creeps up’ as well. We make more, we spend more. We may still save the same percentage of our income, but we could save (and invest) even more if we only kept our lifestyle (and expenses) in check.

This is a quite human phenomenon, and I can hardly be harsh with those who succumb to it. After all, I do live in the Mecca of All Nice Things. Even during the pandemic, boutiques here in Paris that were closed for any of our many lockdowns still faithfully changed their window dressings, keeping up appearances–and temptations–for those of us who could only pass by.

Doors will open soon enough–this week, in fact. Followers of those twin gods Luxury & Elegance will once again be able to worship at their favorite temples: Hermes, Chanel, Chopard, and Goyard will all be welcoming the faithful back on Wednesday.

And I say…bless them one and all. God knows the French economy needs a shot in the arm (no pun intended), and enthusiastic spending by the 1% is a great start.

A Goyard trunk. Photo courtesy of the Good Life Notes blog.

However, for those still working to stack their assets and achieve financial independence, ‘lifestyle creep’ is a serious concern. If you’re moving along in your career and get a promotion, it’s an easy and even rational thing to say to yourself, ‘Great, now I can move into a nicer apartment.’ Or, ‘Great, now I can buy a nicer car.’

The harder thing to do would be to say, ‘Great, now I can save even more money and invest it wisely.’

To address this dilemma, I suggest the middle road: treat yourself to something nice, but not something nice that eats up your entire raise every month. For example, if you got the promotion you were working so hard for, buy yourself something nice. But make it a one time purchase for a durable, timeless, classic ‘something’ that’s going to serve you well for years to come. And pay for it in cash.

If at all possible, avoid adding on an increase in your monthly expenses just because you now have an increase in monthly income. That’s one way to handle lifestyle creep. You can then say to yourself, ‘Okay, I just bought this one nice thing to celebrate this promotion. With my next promotion, I’m moving into a new apartment.’

Using this formula, you’d allow yourself one ‘lifestyle creep’ for every two increases in income. That might be a workable formula for maintaining or increasing your savings rate while still enjoying life and the good things in it.

As always, I’d love to hear your thoughts about how you’ve handled this issue. Continue to be safe and well.

  • BGT

10 thoughts on “Old Money vs. New Money – Lifestyle Creep

  1. I live in the Middle East and the one luxury I allow myself are business class tickets home once a year to see family. Sure, it’s not durable but I look forward to the flight (well, more of an “experience”) and arrived rested. And in times of COVID, the additional space and privacy is important to me.

  2. It’s also known as the hedonic treadmill. You’re right, it’s a difficult problem, especially for younger people. I agree with your advice. I would add one other piece of advice: be old. It’s the best way to avoid the temptations of youth.

  3. It’s wonderful to hear from you; the silence was ‘approaching worrisome’. But perfectly understandable under the circumstances since it appears that with your able and attentive assistance, your friend is recovering. WELL DONE – TO ALL OF YOU!

    And – best of all – the hint of ‘new book’ in process! If you’re ready to share – TOPIC PLEASE – to give us all something to look forward to post – Covid.

    And I – for one – am encouraged – cautious – yes – but lighter and brighter as the days pass by.

    Best regards,
    JanB

    p.s. Amy – your advice/suggestion is delightful too!

  4. And another quick p.s. – my personal reward for an expected or surprise ‘increase’ is always, always to send myself flowers.

    Win, win, win!

    JanB

  5. There’s a benefit to treating any significant salary increase as a windfall. The same can be said for larger tax refunds, and one prescribed way for dealing with that is documented on the Bogleheads wiki. To quote,

    “””Do nothing rash. Set aside one year’s living expenses and place the rest of the windfall into low risk investments (FDIC insured accounts, money market funds, treasury bills) for one year. As it may take as long as five years for the windfall recipient to adjust to a new life, this pause provides a chance for emotions to cool, helps avoid impulsive behavior, and, if warranted, allows the recipient time to put together a team of professional advisers. Then, create a detailed plan to meet your highest priority financial goals, and track your progress over the years.”””

    You might not want to pretend nothing has changed – sticking your head in the sand will not get you anywhere useful either. You might want to use this opportunity to revisit your values, see which patterns of behavior fit in, throw out those that now clearly don’t, and acculturate to the new situation patiently. You might also use it to celebrate a little. And last but not least, you might want to stay humble.

  6. Excellent post! I agree with you wholeheartedly. Thank you. It’s all similar to periodically ‘doing a trial balance’ of one’s life overall to see how everything that truly matters to you is ‘stacking up’ and making adjustments in keeping with your priorities (financial and otherwise) if necessary.
    JanB

  7. With promotions I buy one expensive item. Namely a timepiece. I need two promotions to get one. My wife first, then to me.

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