Who Are You Keeping Up With?
by Jon Flaherty
How often have you become caught up in the “keep up” game we so often play and illustrated so perfectly by the Jones family? With so many places to spend money, whether it be the newest car, latest technology or that bigger house we’ve always wanted, it becomes far too easy to stay in constant “upgrade” mode.
One upgrade here and there might have negligible effects, but when you combine several over the course of a year or many years, you soon find that you’ve spent a little more than you were originally planning. Have you considered how all the “upgrades” are impacting your overall financial health?
Does this apply to you?
First off, you’ll need to know if lifestyle inflation applies to your current situation, and if so, to what degree. Think back to when you first left college. What was your life like then? After landing your first job and receiving the first paycheck, what did you do with the extra income? If you’re like most people you probably went out for a nice dinner, updated your wardrobe, said goodbye to the old car and moved into a fancier place. Whether we knew it then or not, this was a defining moment in our financial lives. Did your lifestyle inflation consume all of your increased income or did you set aside a portion for savings? Your first job and its income may produce the best example of lifestyle inflation, but it comes into play throughout our careers when we either receive a promotion or a large bonus. How you use or save the extra income going forward will affect how easily you can accomplish your long-term goals.
How to keep up for less
Fortunately, there are several ways to keep spending in check. For example, consider including upgrade expenditures on your budget in order to slow down the upgrades and only choose those that are the most important to you. Either the upgrade will fit in your current budget or it won’t. Another option would be to set aside savings on a regular basis for future upgrades. If you have enough in the account for the upgrade, then go for it. If not, then keep saving until you do. Either way, if you stick to your plan then you can ward off excessive spending. A great way to stick to your plan is by choosing an older model when upgrading. Go with what came out the prior year, and continue to upgrade by “lagging” behind by a year. You’ll still upgrade what you have, but won’t be paying the premium cost of the latest and newest item.
Is lifestyle inflation worth it in the end?
Everyone experiences lifestyle inflation over the course of their lives, but the extent of the increased spending will play an important role when it comes to retirement readiness. If your goal all along was to stay current and live in the moment, then you are already achieving your goal. However, what will happen when you see your friends and peers starting to retire and you suddenly realize you’re not on a path to a comfortable retirement? It’s not too late to ask yourself whether you are keeping up with the Jones’ lifestyle inflation group or keeping up with the Jones’ comfortable retirement group. Be intentional, and choose what group you’re in. If you’d like assistance with identifying lifestyle inflation in your finances, budgeting, cash flow planning or retirement planning, talk with your relationship manager today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.