Trick or Creep, Lifestyle creep, Diversified
By: Andrew Rosen, CFP®, CEP®

As a parent, Halloween is one of my favorite holidays.  I love the excitement in my children’s eyes as they run from house to house dressed up in their favorite costume.  They look so adorable and happy. From a father’s perspective, it truly is a special time of year.  Halloween is a time to dress up, pretend, and enjoy the excitement of being scared.

Being as it is the season for frights, I figured my next blog should be on one of the scariest things I see as a financial planner… lifestyle creep!

What is lifestyle creep?

Many of us experience this phenomena and don’t even realize it.  Basically, lifestyle creep pertains to how our style of living increases as we advance financially (most often through our careers).  Once, you drove a 15 year old “beater” car.  Now, you drive a BMW.  You used to only vacation where you could pack the car and drive.  Now, you fly your family of five to Europe every year.

I see this issue almost every day when advising clients.  Quite frankly, it’s human nature to want more.  Most of the time wanting more is just selflessly wanting to provide further for those we love.  I certainly can identify with that; I want to provide the best for my wife and children.  Unfortunately, most of those experiences cost money.  At the end of the day, lifestyle creep is virtually unavoidable.

What’s the fear?

Why is lifestyle creep scary if it’s unavoidable and human nature?  The reality is lifestyle creep has destroyed more people’s financial lives than almost any other thing I have seen. People want to spend when they get a taste of financial wealth.  In their eyes, this wealth equates to freedom.  Many times they simply lose control.  They buy beach homes and time shares, campers and boats.  They commit to country clubs and extravagant lifestyles.  These things aren’t just expensive to do, they are expensive to maintain — don’t forget that.

The two biggest problems with lifestyle creep are:

  1. Once you get a taste, there is no turning back.
  2. Most people don’t save accordingly to maintain these lifestyles.

Let’s dissect these two problems a little further too fully understand the fright factor.

First, once you get a taste there is no turning back.  Trust me on this one.  It may be one of the hardest things to do — to get accustomed to a lifestyle, then go backwards.  I’ve rarely seen someone (except in drastic circumstances) dramatically cut back their elevated lifestyle.  People don’t sell the boat and beach home unless absolutely forced.  Remember, when you tell yourself, ‘Oh this is temporary’ you are usually kidding yourself.

Second, people add these permanent and costly enjoyments to their lives, but fail in saving to maintain them.  They are so focused on getting that thing, they lose sight of continuing to afford these amenities.  They basically under save and over spend.  They tell themselves they’ll save later.  Unfortunately, this rarely plays out.  Instead, it leaves people in dire circumstances.

What can be done?

How does working with a financial planner help?  For starters, our clients are encouraged to leverage our working relationship appropriately, before they go out and make a large lifestyle purchase.  We advocate contacting us, so we can start with a simple dialogue.  We ask them to spell out their dreams and wishes.  Together, we quantify what this means financially (and personally) to them.

Taking into account timing and cost, we then set-up a game plan.  How can we plan responsibly to make those dreams come true?  We figure out how the client can maintain these wants forever by adjusting their plan.  All this leads to accounting for what they’ll need to save, or alter, along the way.  Additionally, repercussions of their decisions are shown through modeling software.  Through this process, we can determine the net effect to their overarching financial plan and what levers need to be adjusted to make this dream a reality.

Then, and only then, can we can look each other in the eye and put a well thought-out plan together. During that planning process, we’ll figure out what adjustments are needed, as well.  Sometimes this means you need to work longer, or cut out other expenses.  Other times, it’s simply increasing savings by a certain percent to calibrate for this new lifestyle expense.  Whatever these changes are, it comes from hours of dialogue, planning, modeling, and soul searching.

I found many times after going through all of this, one of the spouses speaks up and says, “I think our priorities and efforts are better spent elsewhere.”  I’ve also seen the opposite, where both spouses get really excited and say, “Great let’s do this and thanks Andrew for putting a plan together to make it happen!”

Through the process, they now know what tweaks must be done in order to get there.

Trick or Treat!

If you are not careful, these treats may just be a trick after all.  Without a plan, lifestyle creep can be very scary and stressful.  A non-sustainable treat that may lead to a lot of angst in your life.

Regardless if you shuttle the kids from house to house, go to an adult dress up party, or simply sit at home to handout candies to the neighborhood children, the scariest thing you might experience this season could be the lifestyle creep right around the corner!  If you are fearful you are already there, don’t hesitate pick up the phone and give us a buzz (302-765-3500)!


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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
Find out more about Kyle Hill, CFP®
Find out more about David Levy, CFP®

Financial planning and Investment advisory services offered through Diversified Financial Consultants, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRASIPC .  Associates of Diversified Financial Consultants are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.