We’ve all been there. You start to make more money.  Then you start to spend more money.  Life feels more fun and you begin to loosen up the spending reins.  You start to be less precise with saving and spending as you have this added cushion.  It feels nice. 

Fast forward six months to a year or more and this becomes your new normal.  Being loose with your money is easy.  You upgrade everywhere.  A better car, better clothes, more eating out, etc.  This elevated lifestyle becomes commonplace.   

There is nothing inherently wrong if you are spending intentionally and it fits in your overall financial plan.  The thing with most lifestyle inflation and spending overall, however, is that it’s not intentional.  Most just drift through the weeks and spend as needed without a plan.  In addition, the social pressures to show you’ve made it along with being bombarded with advertising makes it the path of least resistance to spend more. Everything and everyone wants you to spend…so you do. 

Fast forward 5, 10, 15 years or more. You look back and wonder where all the years have gone! You realize retirement isn’t as far away as you once thought. You realize you are not where you need to be. You realize that if you don’t act fast you may be forced to work much longer than you wanted. You realize that it also might be too late and you might need to work past 65 or even 70.   

What the heck went wrong?

What went wrong? The thing is, it is hard to even put your finger on where all the money went.  It just disappeared.  It was truly death by 1,000 cuts.  $20 here, $30 there, a larger car payment here, more entertainment there, etc.  Again, nothing wrong with spending if done within a financial plan, which means you set aside what you need to save each month and then spend the rest, as opposed to spending all of it (or maybe even more) and maybe invest once in a while if there is money left over.   

There is also nothing wrong with working at any age.  However, to have true financial security and more life satisfaction it is superior to have the option to work full or part time or not at all.  “Choose to” work instead of “have to” work can make all the difference in the world!   

Probably the most significant lever you have for your financial future is your savings rate, which is the gap between what you earn and what you spend. Ultimately it only matters what you save and invest when it comes to building financial security.  How you get there is up to you.  You can earn more, spend less, or do a combination of both.  Regardless, what you actually save and invest will be the driver.  The rest is just your day to day inflows and outflows. 

In summary: 

  • Lifestyle inflation is real.  This is one of the most dangerous detractors to financial security. 
  • Lifestyle inflation can put you in a position to require you to work much longer than you would care to 
  • Making sure you save regularly is the key to building financial security 
  • Once you achieve financial security you’ll have a lot more flexibility to work a schedule that fits your needs, if at all

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