Finance Flash Go! Episode #38: Lifestyle Creep

Today on the Finance Flash Go! podcast, we discuss how to manage lifestyle creep!

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So, we are all on the same page, lifestyle creep is the concept that when we increase our income, we respond by increasing our spending.

This is such a huge thing for physicians because after training, our income increases 100s fold overnight. Add that to years and years of delayed gratification and mountains of debt and it can be a recipe for disaster.

The reason is that it is much easier to reduce spending that was never there by avoiding excessive lifestyle creep than it is to get rid of the spending once the items like huge houses, luxury cars, etc are already signed for and bought on credit or with loans.

Once your lifestyle creeps too much, you will still have to pay loans and your income is never going to increase 100x again. In fact, many doctors have seen their income decrease, leading to issues like bankruptcy.

How do I mitigate lifestyle creep?

What are some strategies to mitigate lifestyle creep? Rent your first home or at least do not spend more than 2x your income on your home. Abide by the 10% rule, use 10% of your income increase to spend guilt free. The rest goes to your plan/savings. Set aside big ticket items to buy with cash once you have saved up enough. Science shows you will enjoy them more). Reward yourself with an indulgence when you reach big financial goals like paying off credit card debt etc. Be intentional with your spending. We are bad judges at what will make us happy in the long term, most of the time we get a short burst of enjoyment and then regress. Really think if what you want to buy will make you happier. If the answer is no or you are not sure, then don’t buy it.

In fact, I would go so far as to say that I can predict with good accuracy how someone will end up financially by what they do with their first attending paycheck. You have a critical window here to really set yourself up for financial success and even make up for past mistakes. Once you are debt free and firmly on the road to financial freedom, there will be plenty of time for splurging if you decided that’s truly what makes you happy – although I bet you will find that not quite to be the case.

I really hope that you all enjoy the Finance Flash Go podcast! We plan to release a new episode every weekday answering important finance questions. If you ever want to submit a question to our podcast, send an e-mail to [email protected].

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