202: How to Prevent Lifestyle Creep & Manage Your Finances Wisely

Ready to take charge of your finances? Join Josh and Austin as they share all of their secrets on preventing lifestyle creep and mastering your money management. Get tips to control spending and pave the way for a secure financial future. Don’t miss this chance to unlock financial freedom—tune in today!

 

Main Talking Points

[0:54] – What is Lifestyle Creep?

[5:18] – Setting Clear Financial Goals

[7:21] – Creating a Budget to Avoid Overspending

[9:39] – Automating Finances to Fit Long-Term Goals

[10:53] – Living Below Your Means (While Still Enjoying Life)

[12:35] – Avoiding Impulse Purchases

[16:47] – Dad Joke of the Week

[18:05] – Limiting Your Credit Card Spending

[19:21] – Tracking Your Expenses

[20:38] – Review & Adjust Your Budget Regularly

[23:10] – Prioritizing Debt Reduction

[24:49] – Practicing Gratitude & Abundant Mindset

[26:31] – Final Thoughts on Avoiding Lifestyle Creep

 

Links & Resources

 

Full Transcript

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I am Austin Wilson, Co-Portfolio Manager at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

Please subscribe. If you’re not subscribed, hit that plus, follow, whatever icon allows you to get the new episodes when they drop on Thursdays. That’s what you should do. Also, we would love it if you’d leave us a review on Apple Podcasts, Spotify, or as I continually say, heaven forbid, Google Podcasts, if that’s even-

Josh Robb:

The best podcast app in the world.

 

[0:54] – What is Lifestyle Creep? 

Austin Wilson:

But that will help us to get ranked and hopefully found by more of you. So, today we are going to be talking about a topic called lifestyle creep, which is like another way to think about lifestyle inflation. Really occurs when your standard of living increases as your income rises, which isn’t necessarily a bad thing in and of itself. That kind of is how life works a lot of time, but we’re going to talk about how you can try to avoid that as much as possible and set yourself up for success from a financial standpoint, to really relieve some stress and help you to meet those long-term goals.

Josh Robb:

Yeah, and this is an important topic, because controlling your spending, especially while you’re seeing increases in your income, has a huge impact on retirement planning and your retirement success. Because if you think about it this way, if I’m bringing in $2000 a month, just to make it easy-

Austin Wilson:

Thought you were going to say “a year,” and that would not go very far.

Josh Robb:

Nope. And my expenses are $1500 a month.

Austin Wilson:

Yep.

Josh Robb:

It’s great. I’m saving $500, I’m doing my thing there, and then I get a raise, and now I’m earning $3000 a month. Now, if I kept my spending the same, $1500, I could actually save half of my income each month, which would be great.

Austin Wilson:

It would.

Josh Robb:

And we know that 20% is kind of that target point, so I’d be well beyond that. I’d be pretty excited. But what normally happens is, when I get an extra thousand dollars in my paycheck, I use that for things maybe I wasn’t able to do before on $2000, and there’s nothing wrong with that. Increasing your enjoyment, happiness, or just necessities is important. The key is controlling how much of that. So let’s say I go from $2000 to $3000 in my example, then I go from $1500 to … the same savings … $2500 in spending.

Austin Wilson:

Yep.

Josh Robb:

Now, my savings rate just went down as a percentage.

Austin Wilson:

As a percentage.

Josh Robb:

I’m still saving the same dollar amount, but those dollars, those $500 a month that I was saving before, have to now cover more lifestyle when I retire.

Austin Wilson:

Absolutely.

Josh Robb:

Because now I’m used to spending $2500 a month instead of $1500 a month.

Austin Wilson:

It is much easier to add spending as a lifestyle than to cut it back.

Josh Robb:

Yes, you get used to what that affords.

Austin Wilson:

Absolutely.

Josh Robb:

And a lot of times, it comes with debt. A lot of times what it is is, “Oh, I’m earning some more money. Now I can go upgrade my car, upgrade my x,” whatever you want to talk about, and usually, a lot of times you finance that. And so then it becomes this ongoing expectation of payments that you have to pay along with that, so you don’t even feel any better off because your cash flow never really reflects that increase in income.

Austin Wilson:

And in fact, the statistics would point out that there are … Obviously, the vast majority of Americans are living paycheck to paycheck and have very little savings, period.

Josh Robb:

Yep.

Austin Wilson:

But there are even a sizable … I would say a majority of people making over $100,000 that are even living paycheck to paycheck, and they’ve done exactly that.

Josh Robb:

Yes.

Austin Wilson:

They make great money. They really do make good money, but they have completely let their lifestyle inflate one for one with their income, maybe sometimes more than one for one with debt, but at least one for one. As their income’s gone really well and gone really high, so has their lifestyle, and they’re actually in a pretty tough financial situation because of that.

Josh Robb:

Yep. So again, it comes back to not so much today, but it comes back to what those dollars you’re saving have to cover down the road when you’re retiring. And that’s the key to this, because your retirement plan derives from three things: how much you save while you’re working, how long you work, and then the biggest one is how much you spend once you do retire.

Austin Wilson:

Right.

Josh Robb:

You control those three things, to the most extent, the how long you work. There’s health issues that could affect that, but in general, you get it picked when you retire, and at that point, then you start spending. Now, those are what you control. You don’t control the market. You don’t control other aspects, which you shouldn’t worry about. You should worry about those three, but the biggest of those three is your spending in retirement.

Austin Wilson:

Yep.

Josh Robb:

Adjusting that number really impacts your success, and so that’s why lifestyle creep matters a lot.

Austin Wilson:

So you kind of lead me right into the beginning of my list, and for your pleasure, Josh-

Josh Robb:

Thank you.

Austin Wilson:

… it is a list of 10.

Josh Robb:

Nice.

Austin Wilson:

It’s an even number.

Josh Robb:

Yup.

Austin Wilson:

Everyone likes 10. 10’s a nice number. So we’re doing 10 ways to avoid lifestyle creep today, and this is ways that will pay dividend-

Josh Robb:

Oh, there you go.

 

[5:18] – Setting Clear Financial Goals 

Austin Wilson:

… later on in life. There’s a little financial pun for you. So number one, Josh, you kind of just alluded to it, but set clear financial goals. And I feel like we talk about this in every other episode. It is so important.

Josh Robb:

Setting goals is a good thing for a lot of different reasons.

Austin Wilson:

It really is.

Josh Robb:

Yes.

Austin Wilson:

But the key point as it relates to avoiding lifestyle creep is to have a plan. So, set those goals. Define your financial objectives. Number one, like you talked about, saving. Saving’s important and you need to be saving for retirement, and we’re in a different generation now where it’s definitely on us as the worker, as the employee, to be doing the saving, rather than prior generations, it may have been pensions and things like that. It’s definitely more on us now, so we have to be intentional about it. Things like goals of paying off debt, goals of buying a home, maybe goals of paying off your home, goals of funding kids’ college plans, goals of x or y or z. Having specific goals is really going to help you to resist temptation to increase your spending unnecessarily. Beyond what you should need to already be achieving those goals, just to be doing additional things outside of that, you have no need to if they’re not in your goals.

And this is where having a financial advisor can really come in handy, because they can help you determine how much you need to be saving and what you really need to be living on, and then hopefully helping you have that gap in the right place it needs to be so that when you can retire, you’ve got some margin, right?

Josh Robb:

Mm-hmm, makes sense.

Austin Wilson:

So, you’re not in this alone. That is really the key point here. You don’t have to do this alone, so work with someone to set some very clear financial goals and you’ll be set up well ahead of most of your peers.

Josh Robb:

Yep. And the other piece of that, you talked about it, but it’s not just resisting temptation to increase your spending, but it’s knowing when you can. Because again-

Austin Wilson:

Isn’t that freeing?

Josh Robb:

… you set those goals to say, “Hey, at this point in time I want to get a boat,” or whatever that thing is you want to do, and you set that goal and you work towards it, and it fits in your plan. There’s freedom to do that.

Austin Wilson:

Absolutely.

Josh Robb:

So yeah, it’s a two thing of helping avoid unnecessary increases, but also knowing when you can afford to adjust that spending level.

 

[7:21] – Creating a Budget to Avoid Overspending 

Austin Wilson:

Absolutely. So number two, we’ve talked about this again before, but creating a budget is really helpful in avoiding lifestyle creep. So, think about this. You’ve got your ins and your outs. Those are the two things you’re mapping.

Josh Robb:

Yep.

Austin Wilson:

You know your income. You just look at your paycheck, look at your take-home.

Josh Robb:

So budgeting are like belly buttons. You can have ins and outs.

Austin Wilson:

You can have innies and outies.

Josh Robb:

Yes.

Austin Wilson:

That’s so funny. So yes, create a budget. You start with your take-home pay.

Josh Robb:

Yes.

Austin Wilson:

That’s what money is coming into your account. Hopefully, it’s direct deposit; that’s a whole heck of a lot easier. Money coming in. And then you look, and the way you start this is, track for a month. Say, “I’m not going to say I have a budget right now. I just need to see where my money’s going. I’m going to look at what I spend and how much I spend and what I spend it on.” And you track that for a month, and hopefully, at the end of the month, what you spent is less than what you brought in. That’s the goal.

Josh Robb:

Yep.

Austin Wilson:

But then you can start fine-tuning those, “Okay, well, my mortgage and all housing-related expenses were x, and then my vehicle and transportation expenses were y, and my food expenses were z.” And you start looking at those things in buckets, and then going forward, you can say, “Well, maybe I can flex this down a little bit or up a little bit.” And you kind of fine-tune where you think your spending should be, and that’s how you create a budget, and then you just live within that budget and don’t overspend outside of your little barriers. Now, always when you’re building a budget, build in some buffer.

Josh Robb:

Yes.

Austin Wilson:

That’s a helpful thing.

Josh Robb:

I always talked about that.

Austin Wilson:

Always have a buffer, because guess what?

Josh Robb:

Life happens.

Austin Wilson:

Life happens.

Josh Robb:

Life happens.

Austin Wilson:

You’re going to have a flat tire, and that’s probably … You’re not budgeting for a flat tire.

Josh Robb:

Nope.

Austin Wilson:

But hopefully, over some time, you’ve been shoving a little bit of money aside, and you’ve got things covered this time, a little room for margin on expenses and stuff like that.

Josh Robb:

A lot of budget apps want you to assign a dollar everything, make it do something, so how you solve that is you just make a bucket that’s savings or however you want to look at it. That’s your buffer. And so that’s how I’ve done it, in the past at least, because if you use certain apps or certain budgeting tools, they want you to zero out.

Austin Wilson:

Correct.

Josh Robb:

Zero-based budgeting is what it’s called. If your income is $1000, you’d better have $1000 worth of ideas of what you want to do with this. Now, you could take, again, a portion and say, “This is my buffer. I’m going to put it here,” and that’s what it’s assigned to.

 

[9:39] – Automating Finances to Fit Long-Term Goals 

Austin Wilson:

Absolutely. So that’s budgeting, but that will help you to make sure that your spending is on track with those long-term goals that you created in step one.

Number three, automation. We’re in the era of everything’s automated, but your finances can be automated too. So, best way to do this is pay yourself first. You get your paycheck, and on payday, you automatically transfer things you’re saving for, or certain things to certain accounts for certain expenses. It’s automatic. Use different accounts. Accounts are free to set up most of the places. So use free accounts, set them up, use high-yield savings accounts, whatever you want to do, but make it automatic and pay yourself first, and then you’ll know what’s left after your expenses are covered to hopefully set aside for an emergency fund, or long-term savings, ideally, would be great. But always be paying yourself first through the use of automatic savings and automatic investments and automatic transfers.

This means that once all that’s already taken care of … that’s the long-term thinking or the important and necessary thinking … you may have a little bit of money left over to spend.

Josh Robb:

Yep.

 

[10:53] – Living Below Your Means (While Still Enjoying Life) 

Austin Wilson:

And that way you’ve budgeted for that. That’s planned for. But the money that’s left over, you can feel guilt-free about spending right? So you’ve already saved, you’ve already invested, and you’re already set up there. So, pay yourself first through automated savings and automated investments.

Number four, live below your means, and this goes completely counterintuitive to our entire culture. Our entire culture says, “You get that raise, you deserve a new car, period.”

Josh Robb:

Yeah.

Austin Wilson:

“Go get it.”

Josh Robb:

“You should get one.” Yep.

Austin Wilson:

“Go take out a loan and make it happen, and hey, your neighbor got one, so you should probably get one too. And you should probably get a bigger house, not because you need one, just because you want one,” or whatever. So, make an effort to spend less than you earn. This will free up your finances for one, but it’ll also just keep you from being tempted to consistently be buying new things not because you need them, but because you see other people having them and think you want them.

Josh Robb:

Yes.

Austin Wilson:

But we’re going to talk about this later, but it’s not the things in your life that are making you happy. Just because your neighbor got a new car, you think you need to get a new car. That’s not going to bring you joy. It may bring you temporary joy, but it’s not fulfillment. So, just try and live below your means. And a couple ideas that are simple that came to my mind when I was putting together this note is, number one, it’s okay to cook at home. Some people eat out five days a week, six days a week. It’s okay to cook at home, and it’s a heck of a lot cheaper. Number two, it’s okay to drive an older car. There’s no pressure to go buy a brand new car every couple years. Number three, it’s okay to live in a more affordable home in a more affordable part of town than where the fancy areas of town are. That’s okay.

Because what those things do is it keeps your lifestyle in check and really allows you to be more flexible with your money elsewhere, so those can make big differences. And ultimately, if you keep driving that car for a long time and keep living in that house for a long time, that’s a way of preventing lifestyle creep in and of itself.

Josh Robb:

Yup.

 

[12:35] – Avoiding Impulse Purchases 

Austin Wilson:

So, live below your means. And the last one we’re going to talk about before we take a break for a dad joke … Number five, avoid impulse purchases, and I’m guilty of this myself.

Josh Robb:

Okay.

Austin Wilson:

You go to the store, you’re walking around, you don’t have your list, and you’re hungry.

Josh Robb:

Oh, that’s the worst. Don’t go to the store hungry.

Austin Wilson:

Don’t go to the store hungry!

Josh Robb:

Don’t go to the store hungry.

Austin Wilson:

Then you start aimlessly wandering.

Josh Robb:

I’m not one to buy a lot of stuff-

Austin Wilson:

But food.

Josh Robb:

… but if I’m at the store and hungry, oh my goodness, yes.

Austin Wilson:

So definitely don’t go to the store hungry, definitely don’t go to the store without a list, but that’s just really an example of an impulse purchase.

Josh Robb:

Or just scrolling through shopping online.

Austin Wilson:

Yeah, I’m getting to that too.

Josh Robb:

Yup.

Austin Wilson:

That’s a very dangerous thing as well. So before making really any purchase, but especially sizable dollar figure purchases, take time and think about it. I make this habit, and it’s just weird of me, probably. I don’t even know if it’s right. But when I try and make a purchase over, I don’t know, $500 or whatever, I just tell myself, “I’m just going to wait until next payday and think about it then.” So I’m pushing it back a month or whatever, and then I’ll think about it again, and sometimes I can do that a few times. And over the course of a lifetime, you can push back thousands of dollars’ worth of expenses years, which is kind of a helpful thing. But just don’t-

Josh Robb:

Don’t do that for Christmas shopping.

Austin Wilson:

Yeah.

Josh Robb:

Come January, you’re like, “Ready for it.” Too late, you missed it.

Austin Wilson:

Exactly. But take time to think over those purchases. Avoid buying things on a whim. One thing that bothers me … We live in such a consumer-centric environment. Advertising is in your face.

Josh Robb:

All the time.

Austin Wilson:

Social media advertising, physical advertising, TV advertising, it’s everywhere. And email advertising. They’re always sending coupons, and you know what a coupon is? A coupon is … That’s how they get you. Because if you’re-

Josh Robb:

If wasn’t going to buy it anyways …

Austin Wilson:

If you weren’t going to buy it anyway-

Josh Robb:

It’s 20% off.

Austin Wilson:

… that coupon should not make you go buy that. You still don’t need it. I’m guilty of that myself, but that’s just a little bit of a check there. Some ways to help here.

Josh Robb:

Yes.

Austin Wilson:

Place barriers between yourself and the purchase. One way to do this is only carry cash. It’s kind of painful. Some people are all about that. That’s not necessarily the way I operate. Other ways are as simple as delete the Amazon app off your phone.

Josh Robb:

Ooh, yeah.

Austin Wilson:

Because it’s so easy. “Oh, man, I can have that here tomorrow,” and it’s done. It’s here tomorrow, and I just blew $500, and that’s a risky thing. Another one is get off social media as much as you can. That can help you in a lot of ways. It really can. But the advertising is really, really good, it’s really, really effective, and you won’t see it if it’s not on your phone.

Josh Robb:

That’s true.

Austin Wilson:

So, that’s another way to do that.

Josh Robb:

How I work is I like to research things, and so, especially when it’s a larger purchase, it slows down that process, because if I want to make sure I understand the options, which one is the best for me, and then where’s the best place to buy it? And so for me, just that process alone slows it down to avoid that quick purchase.

Austin Wilson:

And you’re a natural saver anyway.

Josh Robb:

I tend to lean that way. But there’s things that either you have to buy, and they’re larger … Let’s just say, for instance, an appliance breaks down, and you got to buy a new appliance. Your dishwasher, washing machine, or whatever it is. But it’s not a speedy process for me, and so those are the ones … Again, I don’t think that’s a lifestyle creep. That’s more of a replacement of something that broke. But the idea is, there’s a lot of options out there. For instance, our fridge broke a little while back, so we’re looking, and there’s crazy stuff for fridges out there, that can email you when you’re out of food, and … Oh, there’s one with a camera inside so you can see what’s on your shelves when you’re at the store. You can look at it and see what’s there. All crazy stuff. But it’s like, “Do I need that?”

Austin Wilson:

Yeah.

Josh Robb:

It comes back to that lifestyle creep of, “Is that just a cool thing, or do I need it?” And that’s where my research slowed down that process at the store of, “Ooh, that’s a cool feature,” to, “Eh, I don’t think I’d actually use that because I don’t go grocery shopping with a camera on my phone to look at my refrigerator.”

Austin Wilson:

But really, they only had an iPhone app, so you were-

Josh Robb:

That was probably it too.

Austin Wilson:

… you were already out.

Josh Robb:

Yes. That is it. So, we’re halfway through.

Austin Wilson:

Halfway.

 

[16:47] – Dad Joke of the Week 

Josh Robb:

We’re going to do a dad joke.

Austin Wilson:

Halfway there.

Josh Robb:

Speaking of refrigerators, I got a food one for you.

Austin Wilson:

Oh, good.

Josh Robb:

What do you call a reluctant potato?

Austin Wilson:

A reluctant potato … I don’t know, Josh. What?

Josh Robb:

A hesi-tater.

Austin Wilson:

A hesi-tater! Are you a tater tot fan?

Josh Robb:

I like tater tots.

Austin Wilson:

Okay, because I think they’re the superior potato.

Josh Robb:

A good french fry will beat a tater tot to me.

Austin Wilson:

Okay.

Josh Robb:

Like a good french fry, not just like any french fry. But I’m thinking like the ones that you put … I do the vinegar.

Austin Wilson:

Oh yeah, malt vinegar.

Josh Robb:

Yes.

Austin Wilson:

Oh, I like-

Josh Robb:

Those type of fries-

Austin Wilson:

They’re fries?

Josh Robb:

Yes. Those fries will beat a tater tot, but tater tots are good, yeah. I like tater tots.

Austin Wilson:

I’m a tater tot fan as well. I think it’s my favorite potato, because when it comes to potatoes, I do not like soggy potatoes. I am all about crisp per square inch.

Josh Robb:

Okay.

Austin Wilson:

And you know what you get with tater tots? A high crisp per square inch.

Josh Robb:

You do, you do.

Austin Wilson:

There’s a lot of crisp.

Josh Robb:

Outside crispiness.

Austin Wilson:

So, I’m a big fan of the tater tot. I haven’t had one in a while.

Josh Robb:

Breakfast potatoes, I think, are my favorite, so like chunks or hash browns. I could go either way. But I think a good breakfast potato with eggs and stuff …

Austin Wilson:

Yeah, that’s where it’s at.

Josh Robb:

Now we’re getting off-topic.

Austin Wilson:

Okay, before we-

Josh Robb:

Potatoes.

Austin Wilson:

Yeah, before we start drooling on our microphones-

Josh Robb:

All right, changing topics. Now The Invested Dads are talking food.

 

[18:05] – Limiting Your Credit Card Spending 

Austin Wilson:

We’ve got five more ways to avoid lifestyle creep, okay? Number six, limit credit card use, especially … I’m going to put the caveat … if it’s a problem.

Josh Robb:

Yes.

Austin Wilson:

Some people have credit card spending problems, where admittedly, it’s very easy to swipe a card.

Josh Robb:

Oh, yeah.

Austin Wilson:

And nowadays, ooh, Apple Pay? Boom.

Josh Robb:

Yep.

Austin Wilson:

It’s really, really quick, and that can cause overspending just because there’s no barrier between you and actually spending the money.

Josh Robb:

Yep.

Austin Wilson:

So that can encourage overspending, so we would say use them responsibly, and if you can’t use them responsibly, use a debit card or use cash, and then make sure you pay off your balance in full each and every month, because credit card interest rates … You thought they were high a few years ago?

Josh Robb:

Oh, man.

Austin Wilson:

They’re even higher now, and that’s not a good place to be. But credit cards … we’ve talked about this before, so check out our other episodes … but they do have benefits, though. There are rewards, there are perks, there’s cash back-

Josh Robb:

Protection.

Austin Wilson:

… all these things. Protection. That’s good. You can use that component of it, but just be sure to set up the automatic bill pay … every card has this available … on the due date, the full statement balance, every single month. Automatic. You’ll never miss a payment. You’ll never pay a dollar in interest.

Josh Robb:

Yep.

Austin Wilson:

And you actually get the benefits of the credit card without the downsides, so if you’re going to be a user of that, go for that way of doing it.

Josh Robb:

For sure.

 

[19:21] – Tracking Your Expenses 

Austin Wilson:

Number seven kind of ties into budgeting, but track your expenses, actually tracking it. So you’ve already created the budget, but you got to find a way to keep track of these expenses.

Josh Robb:

Along the way, yep.

Austin Wilson:

So there’s a number of ways to do this, but keep a record of all of your expenses. And you can upload them manually, automatically, sometimes you can link your bank, sometimes you can use an app, but sometimes you can just use an Excel spreadsheet and say, “Okay, well. I had five expenses today.” Boom, boom, boom. Write them down, categorize them, do whatever you want to do. Pivot table, ooh, beautiful. However you want to do it, but keep track of those. For some people, it’s as simple as just … You have a little notebook in your car or on your dining room table where you write things down every day, whenever you have that expense, and that’s it. You just keep track of it that way.

You can’t have a budget if you don’t keep track of it. So that allows you to know … Especially with something automated like a spreadsheet or an app, it’ll let you know in the middle of the month how much of the total for the whole month you have. Or sometimes they’ll prorate them depending on how far into the month you are and say, “This is how much you should have spent. You’re ahead of or behind that.” So very helpful tools, but it doesn’t do any good to have a budget if you don’t actually track your expenses against the budget.

Josh Robb:

Yeah, just saying, “This is how much I need to spend on x amount” doesn’t help unless you actually know what you’re spending.

 

[20:38] – Review & Adjust Your Budget Regularly 

Austin Wilson:

Right. And number eight, when you’re looking at your spending, looking at your budget, it’s okay to review and adjust these things regularly. Now, you should at least every month be looking at what your spending is looking like compared to your budget … that makes a lot of sense … but it’s okay to make adjustments needed. So, maybe you’re coming in ahead on expenses in an area for a few months in a row. Well, maybe you just need to be more conscious in your spending about that area, or your budget was wrong and you need to adjust your budget up and pull it down somewhere else.

Josh Robb:

Yep.

Austin Wilson:

That’s okay to do as well. The point is, really, that your goals and your budget don’t need to be constant forever. They can be moving. And one example of this is, generally speaking, every year or so, most people will get some sort of raise, some sort of compensation adjustment. A lot of this is due to inflation and things like that, or you become a more valuable, productive team member to where you work or whatever. And that’s a nice thing that happens, but you can let that entire raise flow through to your budget, or you can do what I like to call the fifty-fifty rule. And Josh, what’s the fifty-fifty rule?

Josh Robb:

Yeah. So anytime you get a raise, you take 50% or half of it, add it to your savings, and then the other 50% is added into your spending budget. So if you get a 4% raise, 2% would be increasing your savings, 2% would be spending. You’re free to add that wherever you need to in your budget, that 2%. The other 2% goes to savings, whether it’s increasing your 401k, or however you save that piece isn’t really important in this topic. It’s more of … Somewhere, you pull that out of your spending. That new money, don’t let it hit your spending. Push it into savings. So fifty-fifty, you just take half of your raise, half to savings, half to spending.

Austin Wilson:

And what this does is it helps your financial planning twofold.

Josh Robb:

Yes.

Austin Wilson:

Number one, you’re increasing your savings, which is going to increase your total investment pool at the end that you’ll be withdrawing from for income, right?

Josh Robb:

Yep.

Austin Wilson:

Number two, it avoids lifestyle creep from happening automatically. It allows a little bit, but it pulls back a lot too.

Josh Robb:

You’re going to have lifestyle creep in the sense of inflation anyways, so you do have to adjust your budget. Food is the greatest example of this, because food costs more this year than it did last year or the year before. You have to adjust your budget accordingly, or you’re going to start changing how you shop. It’s one or the other. And so you do need to let your budget inflate over time to adjust for that. But what we’re talking about here is that creep really is above and beyond what inflation normally is.

Austin Wilson:

Absolutely.

Josh Robb:

So yes, that’s what helps avoid that piece of it.

 

[23:10] – Prioritizing Debt Reduction 

Austin Wilson:

So, that is reviewing and adjusting your budget. Number nine relates to your debt. If you have high-interest debt specifically, you should prioritize reducing that debt, and that will really help you to avoid feeling strapped and letting your lifestyle creep go out of control as you continue to earn more money. So we would call “high-interest debt” things like credit card debt, personal loans. Paying those high-interest debts down as quickly as possible is really going to help, and that’s going to free up more of your income for savings or investments and hopefully help you reduce that percentage that your income is increasing every single year there.

Kind of an overall way to think about how we would prioritize paying down debt is, things like credit cards and personal loans generally have … They’re unsecured debt, very high, very high interest rates. Those are things that should be paid off as quickly as possible, because you are not getting any benefit out of those at all. Then, something like maybe an auto loan is a relatively high, depending nowadays, interest rate on-

Josh Robb:

Yeah, now it’s what, 7%, 8%?

Austin Wilson:

… on a depreciating asset, so that’s not necessarily the most ideal either. Then, things like student loans, which … They’re not asset-backed, but they generally are good for you in the long run, but still a relatively high interest rate. Be paying off something like that next. And then, last but not least, if you want to … there’s really not a lot of pressure, especially if you’re locked in at a low rate … but paying off your mortgage may be an option that you would want to consider. So a lot of it’s interest rate-based, the way that you’re going to be doing that based on securitization, but paying down debt is going to help your overall lifestyle situation, your stress level about your finances. It’s going to be great in a lot of ways there.

 

[24:49] – Practicing Gratitude & Abundant Mindset 

Austin Wilson:

And number 10, last but not least, practice gratitude. When you think about your finances, think about having a mindset of gratitude and thankfulness rather than just wanting more and more and more all the time. Think about a mindset of abundance versus scarcity. That’s what we refer to in our office. And this is really going to put value in simplicity in your life, and contentment in what you already have, or in the people, the social connections, your church, your faith, all of these things. Those can really ultimately put a lot more value into your life than the things you’re putting in them, because things don’t ultimately bring fulfillment, and the sooner we as a people realize this, the better off we’re going to be.

Josh Robb:

Yeah, and that really just comes down to … Again, I’ve talked about this. Habits are very important. Savings, it’s the habit that matters, not how much you’re saving. It’s creating that sense. This is the same here. The habit of practicing gratitude, the habit of enjoying where you’re at, not just always looking for, “Well, what about this next person who appears to have it better than you?” And again, you don’t want to look through life looking back and regretting, “Man, I wish I would’ve been in the moment and enjoyed where I’m at, instead of trying to always strive for that next thing that I’m always looking for.” So yeah, I like that last one, Austin. That’s very good.

Austin Wilson:

So I guess just as a recap, just remember that avoiding lifestyle creep, it’s not something that’s a one-time fix. It’s just something you need to constantly be aware of. It requires a lot of discipline, because naturally we’re going to want to completely let our lifestyle go, but hopefully these goals and these steps can help you to maintain that lifestyle and to help your overall security of your financial plan over long-term there. Josh, any final thoughts?

 

[26:31] – Final Thoughts on Avoiding Lifestyle Creep 

Josh Robb:

Yeah, I think in general, it’s hard to see that impact of what increasing your lifestyle is doing for you long-term, but if you can get in that idea of slowing down, questioning, “Is this really going to bring me that much enjoyment? Is what I’m spending on the most important thing?” I think that just helps over the long run. So I like it, Austin, I like these tips. Great ones put together here. That lifestyle creep or increase in your spending is something that, if you’re not aware of it, it will happen quietly, and before you realize it, you’re going to be … Just look at your budget now versus five years ago. How much has that changed? And some of it’s natural through, again, inflation, but some of it may have just been kind of letting yourself relax and grab more than you could because you had extra spending.

Austin Wilson:

Yep.

Josh Robb:

Something that happens, like you said, almost automatically if you’re not aware of it.

Austin Wilson:

Absolutely. Well, thank you for listening. Maybe you had someone asking, “Wow, I’m about to get a good raise this year. Here’s what I’m thinking about buying.” Point them to this and say, “Well, let’s think about maybe some long-term thinking first and make sure we have those bases covered before we just get out of control with our spending here.” So feel free to share this episode with them or friends and family who are asking about it. As always, feel free to email us any episode ideas at hello@theinvesteddads.com. We would love to hear from you. And until next episode, have a great week.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Thanks. Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.