Keep Lifestyle Creep at Bay

Jeff Witz, CFP®

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Are you earning a significant income but still living paycheck to paycheck? This is a common experience for many younger physicians. Most are making significant incomes, yet still feel as though they are drowning in financial obligations. Many struggled through medical school and residency, and they may still be struggling through student loan payments. However, once the higher income started coming in, they started to spend it just as fast. Many looked at their available account balances and projected future wealth and thought it was time to start treating themselves. They have fallen into the trap known as lifestyle creep.

They call it “creep” because it is sneaky and happens to just about everybody who’s earnings have increased significantly. It begins innocently enough – you survey your surroundings and decide it is time to upgrade your home, your car, your furniture, your cuisine and so on and so on. You are spending more because you can, not because it is truly necessary. You gradually make a complete shift with regard to what’s “normal,” and over time things that used to lie quietly in the want category call loudly from the need category.

Unfortunately, we see physicians fall victim to their own desires and get consumed by lifestyle creep far too often. They worry about money on a monthly basis despite earning hundreds of thousands of dollars because they were not fully prepared for the higher standard of living they embraced. Nip this phenomenon in the bud now! Once you creep forward, creeping back is tough.
Consider the long-term financial impact of your purchasing choices. Do you need to buy a brand-new home with a hefty mortgage right out of residency, or can you live comfortably in a more modest condo that you will pay off in few years or turn into an investment property when you are ready for a jump up to a newer home? While the former may be a status symbol, the latter could be the better long-term financial decision. The less expensive condo ensures you are not strangled by mortgage debt. If you decide to change jobs or move to a new location, you can more nimbly navigate that change, instead of being stuck with an expensive home that could take significant time to get off the market. Being more modest with your purchases can free up cash for other important financial goals like saving for your retirement or children’s college education. Being patient and a little cautious with your spending may result in being more prepared and confident to make an appropriate upgrade when the time comes.

You may be asking yourself, “Why work hard to get ahead if I can’t enjoy my money?” You absolutely can and should! However, you should do it in a deliberate manner that fits your overall financial plan. Upgrade your lifestyle in such a way that you don’t wind up earning two, three, or even four times as much money only to find that finances are tighter than ever.

Start by having a budget. Understand your cash flows and the amounts coming in and out. Use your budget to identify your necessary expenses and be truly honest with yourself about which aspects of your lifestyle are most important. Then construct a financial plan that will keep you dedicated to your most important financial goals. The financial plan will force you to be accountable to yourself and your family. Finally, complete regular checkups. Have you been staying true to your budget? Have any of your financial goals changed that would require an update to your financial plan? Make sure you are not overextending yourself.

Wealth can come in many forms, but the more committed you are to your financial plan, the greater chance you have of becoming truly wealthy.

Jeff Witz, CFP® welcomes readers’ questions. He can be reached at 800-883-8555 or at witz@mediqus.com.

200 North LaSalle Street – Suite 2300 – Chicago, Illinois 60601
312-419-3733 – Toll Free 800-883-8555 – Fax 312-332-4908 – www.mediqus.com
Investment advisory services offered through MEDIQUS Asset Advisors, Inc. Securities offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC ∙ 5187 Utica Ridge Rd ∙ Davenport, IA 52807 ∙ 563-326-2064 ∙ MEDIQUS Asset Advisors and Ausdal Financial Partners, Inc. are independently owned and operated.

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Keep Lifestyle Creep at Bay

  Are you earning a significant income but still living paycheck to paycheck? This is a common experience