Keeping up with the Joneses

Keeping up with the Joneses

February 22, 2022
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Picture this scenario: You have been working at your job for a few years and you do complete and honest work. Your boss does not leave your work ethic unnoticed, but rather they call you into their office and offer you a promotion. Obviously you accept, not only because of the vertical rise professionally but because of the prospect of better pay and benefits. You had become accustomed to the salary you had and you stringently budgeted around that salary to the point where this new change throws everything off. This isn’t a bad problem, but you simply have more money than you needed before. So what do you do now that you have more money to spare? You spend it of course! You start splurging and treating yourself way more often than before. Your strict budget becomes very loosely followed. Quickly though you find yourself in a precarious situation. You spent too much. You no longer have the money to spare. Splurging is no longer a luxury you can afford because you are living pay-check to pay-check. Now to get back to a comfortable lifestyle you have to be disciplined enough to put in the work and get promoted again so that you are raised to a salary capable of offering a cushion above your monthly expenses. But then who knows, the cycle could viciously repeat itself again.

The narrative I just told you is a prime example of lifestyle inflation. Lifestyle inflation, or lifestyle creep as it is often called, refers to the pattern of behavior among people who get a raise and see an increase in their spending habits because of it. Rather than using the money to help create a better financial future for ourselves, often times we end up using the surplus cash on things we don’t need and we start living beyond our means. The stuff, and I use that word as literally as possible in this case, that we want and can now actually afford we buy. We start looking at nicer homes that we might actually be able to afford now and we move and take on the higher mortgage. While we do this we forget about the interest-bearing student loans that we could be using the new cash to put a dent into. Retirement accounts? We’re contributing enough, let’s live now. I think this epicurean frame of mind is a part of our human nature. To have a successful financial future we need to stay grounded.

As a disclaimer I am not saying that you shouldn’t ever celebrate success or treat yourself to something special. You totally can and should reward yourself when the good work has been done. Letting that one time purchase grow into an unsustainable standard of living is a problem. One of the things we tell our clients and prospects all the time is to “live like no one else now so that you can live like no one else later”. On the surface this quote doesn’t seem to make any sense, so I’ll explain. Most people like to live for today. They spend what they want to spend to be happy now often at the cost of happiness and stability later. Choosing to save extra when you can rather than spend can be a struggle and means that at times you may not have the possessions that everybody else has. When the time comes to retire though you will be in a better position because you chose to stick to the plan. You will retire on time, maybe even early, and you’ll be able to live the lifestyle you have been planning for. The majority rest of the population in your age group may be forced to delay retirement or at the very least tweak their standards for what they want to do and how they want to live.

Keeping up with the Joneses will keep you from accomplishing 100% of your goals in retirement. You might still get pretty close, but we don’t aim for pretty close. We aren’t playing horseshoes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss.