Gut check: is this lifestyle creep?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Gut check: is this lifestyle creep?

Post by Tamarind » Tue Feb 13, 2018 3:31 pm

I've heard the guideline that one should save half of any salary increase. I'm about to get a $40k increase in salary and I wonder if you think my plan amounts to lifestyle creep rather than following the spirit of the rule.

My draft budget does have $20k in "new" savings, but it's mostly to taxable for future spending that we have just been deferring until now: car replacement for when current car dies, future home renovation, our first international vacation. We already have adequate emergency funds.

We would hold our retirement savings steady at 30% of gross income, and max all tax-advantaged options for the first time. If I did not save for the medium term items, the money would go into a taxable retirement account, so the difference is in my AA (cash/CDs vs adding to three fund) and time frame.

Am I courting lifestyle creep or are taxable savings taxable savings?

ETA: The car would not be a Lamborghini. :shock:
Last edited by Tamarind on Tue Feb 13, 2018 4:47 pm, edited 1 time in total.

LukeHeinz57
Posts: 104
Joined: Wed Sep 03, 2014 12:01 pm
Location: Ohio

Re: Gut check: is this lifestyle creep?

Post by LukeHeinz57 » Tue Feb 13, 2018 3:39 pm

This seems eminently reasonable to me...you can always save more or do better, but life should be lived as well. You're striking a pretty reasonable balance in my estimation. I feel like any year I max all of my Tax-advantaged accounts (401k, HSA, Roth's) I've done wonderfully and any savings above and beyond that is gravy. Hope that helps! :beer
"Contentment", the only thing you ever truly need more of!

Jack FFR1846
Posts: 7956
Joined: Tue Dec 31, 2013 7:05 am

Re: Gut check: is this lifestyle creep?

Post by Jack FFR1846 » Tue Feb 13, 2018 3:47 pm

The lifestyle creep would occur if and when you buy things that are above and beyond what you do now. So saving for a Lamborghini isn't lifestyle creep. Buying the Lamborghini is lifestyle creep.

It could be said that replacing your car isn't lifestyle creep if it needs to be replaced but if that becomes getting a new car every 2 years, there it is.
Bogle: Smart Beta is stupid

User avatar
iceport
Posts: 4006
Joined: Sat Apr 07, 2007 4:29 pm

Re: Gut check: is this lifestyle creep?

Post by iceport » Tue Feb 13, 2018 3:53 pm

Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
Am I courting lifestyle creep or are taxable savings taxable savings?
I believe you are "courting" lifestyle creep. (That's a great way to put it.) That's not intended to be a judgement, just an observation. Everyone must find the right balance between preparing for the future and immediate gratification, and I don't presume to know what the right balance is for me, let alone what it is for you!

Roughly 10 years ago, my workplace underwent something of an escalation in compensation, such that after 5 years or so, many of us made roughly 25% more than 5 years earlier. (Don't hold me to the numbers.)

Fast forward 8 years, and a coworker was lamenting not having enough to sustain his current lifestyle, and not really saving anything. On the other hand, I lived and spent just as I had been prior to the big wage escalation and was socking away the difference (which, by the way, allowed an early retirement). The difference in our situations was dramatic. I asked him if, years earlier, he would have ever believed he'd be earning as much. And he agreed he had never expected to be earning his current salary. Yet there he was, struggling with cash flow!

The thing I keep coming back to is that lifestyle creep really doesn't increase happiness, except in the short term. But it sure can cut into your options in the future if you let it.
"Discipline matters more than allocation.” ─William Bernstein

Dandy
Posts: 5403
Joined: Sun Apr 25, 2010 7:42 pm

Re: Gut check: is this lifestyle creep?

Post by Dandy » Tue Feb 13, 2018 3:54 pm

Be easy on "rules". It is a very good idea to save a portion of your salary increase or bonus. But, 50% is just a nice, challenging percentage. If you are doing other things well e.g. living below your means, saving hopefully double digits or more for retirement, staying out of most debt, etc. are more important.

If you are on or near target for retirement then you should feel good about increasing your lifestyle a bit. When I was in that position I used to save 1/3 for retirement, another 1/3 for near future needs e.g car replacement, and 1/3 for improving current lifestyle, e.g. nicer vacation, etc.

My goal, after getting on track with my retirement goal was to gradually increase my lifestyle. To be honest I started from a pretty modest lifestyle - drove a rusty Pinto to work for 11 years! :oops: Life balance is a key to a happy life. Just try to make sure that you keep an eye on your fixed expenses. A nice vacation is usually a one shot expense deal. Joining the Country Club usually isn't. With a nice raise you can easily increase your lifestyle and still be living well below your means.

fposte
Posts: 1201
Joined: Mon Sep 02, 2013 1:32 pm

Re: Gut check: is this lifestyle creep?

Post by fposte » Tue Feb 13, 2018 3:56 pm

I think some of it is lifestyle creep, and that that's not automatically a bad thing. It's one thing to live below your means; it's another to live forever as if you were still only earning your entry-level pay. You're maxing out the tax-advantaged space first; can you get to the retirement you want only with tax-advantaged space and SS/pensions? If not, consider divvying up the taxable savings, either mentally or actually, into a retirement fund and a saving for big ticket expenditures fund.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Tue Feb 13, 2018 4:59 pm

fposte wrote:
Tue Feb 13, 2018 3:56 pm
I think some of it is lifestyle creep, and that that's not automatically a bad thing. It's one thing to live below your means; it's another to live forever as if you were still only earning your entry-level pay. You're maxing out the tax-advantaged space first; can you get to the retirement you want only with tax-advantaged space and SS/pensions? If not, consider divvying up the taxable savings, either mentally or actually, into a retirement fund and a saving for big ticket expenditures fund.
Thanks for introducing this idea. We are on track for the needed amount to retire in early or mid 50s with just tax-advantaged, though obviously we'd want to have some of that amount in taxable at that time to bridge the early years.

I also updated my original post to give a little context on the scale of future spending - ie the car replacement fund is for replacing the current car when it dies, not for trading up.

MathWizard
Posts: 3047
Joined: Tue Jul 26, 2011 1:35 pm

Re: Gut check: is this lifestyle creep?

Post by MathWizard » Tue Feb 13, 2018 5:03 pm

Yes it could be, but one-time expenses would not be.
For example, paying off a home with it to save interest, or buying
a new high efficiency furnace which would save you money later.

Remember that only a part of that $40K is yours. Quite a bit will likely go to
taxes. I always wait one month to see what the difference in take-home is.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Tue Feb 13, 2018 5:07 pm

MathWizard wrote:
Tue Feb 13, 2018 5:03 pm
Yes it could be, but one-time expenses would not be.
For example, paying off a home with it to save interest, or buying
a new high efficiency furnace which would save you money later.

Remember that only a part of that $40K is yours. Quite a bit will likely go to
taxes. I always wait one month to see what the difference in take-home is.
Good point and a good reminder to check. The $40k is gross, the $20k taxable savings is after tax. I budget in after-tax dollars and assumed 23% effective, which is higher than I expect it to be even after the bump.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Tue Feb 13, 2018 5:08 pm

iceport wrote:
Tue Feb 13, 2018 3:53 pm
Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
Am I courting lifestyle creep or are taxable savings taxable savings?
I believe you are "courting" lifestyle creep. (That's a great way to put it.) That's not intended to be a judgement, just an observation. Everyone must find the right balance between preparing for the future and immediate gratification, and I don't presume to know what the right balance is for me, let alone what it is for you!

Roughly 10 years ago, my workplace underwent something of an escalation in compensation, such that after 5 years or so, many of us made roughly 25% more than 5 years earlier. (Don't hold me to the numbers.)

Fast forward 8 years, and a coworker was lamenting not having enough to sustain his current lifestyle, and not really saving anything. On the other hand, I lived and spent just as I had been prior to the big wage escalation and was socking away the difference (which, by the way, allowed an early retirement). The difference in our situations was dramatic. I asked him if, years earlier, he would have ever believed he'd be earning as much. And he agreed he had never expected to be earning his current salary. Yet there he was, struggling with cash flow!

The thing I keep coming back to is that lifestyle creep really doesn't increase happiness, except in the short term. But it sure can cut into your options in the future if you let it.
Thank you, this a great story about how it can sneak up on you.

Easy Rhino
Posts: 3267
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: Gut check: is this lifestyle creep?

Post by Easy Rhino » Tue Feb 13, 2018 5:22 pm

Hey, you're saving 30% of your gross, and maxing tax-advantage space (at two jobs?). That's very admirable work. You're probably allowed to spend money. And saving in advance for large expenses is preferable than financing it.

but my real question is, what were you planning on doing with the other $20k? (or roughly $11k, after taxes)

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Tue Feb 13, 2018 7:35 pm

Easy Rhino wrote:
Tue Feb 13, 2018 5:22 pm
Hey, you're saving 30% of your gross, and maxing tax-advantage space (at two jobs?). That's very admirable work. You're probably allowed to spend money. And saving in advance for large expenses is preferable than financing it.

but my real question is, what were you planning on doing with the other $20k? (or roughly $11k, after taxes)
Yes, maxing 2 401ks and 2 Roth IRAs. I'll lose ability to contribute to an HSA. The other part of the raise goes to maxing out the 401ks because we weren't before (~$4k after redirecting HSA money), extra principle payments on the mortgage (~$4k), and a little extra current spending (~$3k lets us replace some shabby clothes, address expected auto repairs, and go for an occasional extra dinner out as we like spending on good food).

Easy Rhino
Posts: 3267
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: Gut check: is this lifestyle creep?

Post by Easy Rhino » Wed Feb 14, 2018 1:20 pm

I would preferentially put money in the HSA (because of the tax break) over the 401k, or paying extra mortgage. Remember that the HSA has no penalty after you're 65, so if you don't exhaust it on medical spending it effectively becomes another retirement account.

So it sounds like there's maybe $10k-ish in pure retirement savings, $3k in pure spending, and the rest in intermediate term savings.

That's not too terrible. If you fee guilty about it (wouldn't want you to feel bad), you could sacrifice a little medium term savings to max out the HSA.

also note that if the expenses are far enough in the future, you might end up cash flowing them anyway as opposed to relying on the medium term savings, if you get another raise, etc.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Gut check: is this lifestyle creep?

Post by Pajamas » Wed Feb 14, 2018 1:34 pm

I think of lifestyle creep as having more to do with becoming accustomed to higher standards of living and luxuries in particular so that they seem to be needs rather than discretionary wants. For instance, air conditioning was once uncommon but is now considered a necessity. It always amuses me to read here about people "needing" a bigger house because they have two children when their current house is already three or four times larger than the average house that people raised three or four children in just a few generations ago. That is lifestyle creep on a societal level, but the same thing happens to individuals when their financial situation changes for the worse suddenly and they are lost without their expensive lunches and $300 hair and nail appointments, etc.

Seems like that sort of thing is not an issue for you at this time based on what you said. When you take an international trip every year and then a couple of times a year and then become accustomed to it so that it seems like a routine entitlement, that might be lifestyle creep and something to worry about. Just appreciate what you are able to have and do and don't fall into the trap of feeling like the universe owes you.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Wed Feb 14, 2018 2:04 pm

Easy Rhino wrote:
Wed Feb 14, 2018 1:20 pm
I would preferentially put money in the HSA (because of the tax break) over the 401k, or paying extra mortgage.
I would too and did max it out at the old salary rather than max 401k. However I will lose eligibility to contribute to an HSA in March.

TheDDC
Posts: 211
Joined: Mon Jan 08, 2018 11:11 am

Re: Gut check: is this lifestyle creep?

Post by TheDDC » Wed Feb 14, 2018 2:08 pm

Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
I've heard the guideline that one should save half of any salary increase. I'm about to get a $40k increase in salary and I wonder if you think my plan amounts to lifestyle creep rather than following the spirit of the rule.

My draft budget does have $20k in "new" savings, but it's mostly to taxable for future spending that we have just been deferring until now: car replacement for when current car dies, future home renovation, our first international vacation. We already have adequate emergency funds.

We would hold our retirement savings steady at 30% of gross income, and max all tax-advantaged options for the first time. If I did not save for the medium term items, the money would go into a taxable retirement account, so the difference is in my AA (cash/CDs vs adding to three fund) and time frame.

Am I courting lifestyle creep or are taxable savings taxable savings?

ETA: The car would not be a Lamborghini. :shock:
Here's what your goal should be: pay nothing (or close to nothing) in taxes, legally of course, by maxing out retirement and saving in a tax avoidable way. The rest can be charitable contributions. You shouldn't really need too much more besides basic living expenses. The other stuff is just fluff.

-TheDDC

User avatar
meowcat
Posts: 387
Joined: Wed May 09, 2012 5:46 am

Re: Gut check: is this lifestyle creep?

Post by meowcat » Wed Feb 14, 2018 3:04 pm

This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson

3funder
Posts: 758
Joined: Sun Oct 15, 2017 9:35 pm

Re: Gut check: is this lifestyle creep?

Post by 3funder » Wed Feb 14, 2018 3:09 pm

I'm not feeling the lifestyle creep vibe here, so no.

SDLinguist
Posts: 78
Joined: Wed Jan 31, 2018 2:39 pm

Re: Gut check: is this lifestyle creep?

Post by SDLinguist » Wed Feb 14, 2018 3:35 pm

meowcat wrote:
Wed Feb 14, 2018 3:04 pm
This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
+1

I would not call it lifestyle creep if it does not impact savings rate negatively and does not impact ones financial stability.

Personally we are going through something similar, big income spike) and are forcing ourselves to save around 30% via paycheck deductions: 401k, ESPP that is then used to fund Roth, HSA. So we don't have that money to spend. We have an emergency fund for 6-9 months and are slowly saving for a house in the mid term via depositing a part of our paychecks into a separate savings account for about another 5%

I think at that point you can spend what ever is left over at the end of the month without any guilt. So I think the OP is in a good position.

You also don't want to over save and then have so many pent up wants that you explode one day and blow through all the savings thinking you can go back. Cutting things out is a lot harder to do than not spend on them in the first place.

JBTX
Posts: 4089
Joined: Wed Jul 26, 2017 12:46 pm

Re: Gut check: is this lifestyle creep?

Post by JBTX » Wed Feb 14, 2018 5:01 pm

Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
I've heard the guideline that one should save half of any salary increase. I'm about to get a $40k increase in salary and I wonder if you think my plan amounts to lifestyle creep rather than following the spirit of the rule.

My draft budget does have $20k in "new" savings, but it's mostly to taxable for future spending that we have just been deferring until now: car replacement for when current car dies, future home renovation, our first international vacation. We already have adequate emergency funds.

We would hold our retirement savings steady at 30% of gross income, and max all tax-advantaged options for the first time. If I did not save for the medium term items, the money would go into a taxable retirement account, so the difference is in my AA (cash/CDs vs adding to three fund) and time frame.

Am I courting lifestyle creep or are taxable savings taxable savings?

ETA: The car would not be a Lamborghini. :shock:
If you are saving 30% of gross and maxing retirement accounts, and can continue that, you are doing very well. The only reason you would likely need to save more is if you planned on retiring even earlier.

It isn’t lifestyle creep to buy a car or to fix up your house if it needs it. Sometimes those things aren’t evenly distributed. If you are like us being a saver you tend to put those off, but then after a while these expenditure tend to pile up. We will have completed a remodel and bought there cars including this year and the next 2-3 years, plus started our daughter in college. The cars have always been low mileage used. We probably spent 25-50% more than we had to on the remodel, compared to a bare minimum maintenance update. You could argue that was lifestyle creep.

A vacation isn’t a mandatory expense but I’d never pass up such an opportunity as long as you are making your goals. You may not have the opportunity to do it again, ever.

User avatar
iceport
Posts: 4006
Joined: Sat Apr 07, 2007 4:29 pm

Re: Gut check: is this lifestyle creep?

Post by iceport » Wed Feb 14, 2018 7:12 pm

SDLinguist wrote:
Wed Feb 14, 2018 3:35 pm
meowcat wrote:
Wed Feb 14, 2018 3:04 pm
This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
+1

I would not call it lifestyle creep if it does not impact savings rate negatively and does not impact ones financial stability.
You might agree that it is irrelevant, but spending more money on goods and services (nicer cars, more toys, nicer or more vacations, etc.) is by definition lifestyle creep.

Not decreasing your saving rate is not the test of lifestyle creep; increasing your (real) spending rate is the test.

(As it turns out, there is an Investopedia definition: https://www.investopedia.com/terms/l/li ... -creep.asp. 8-) )
"Discipline matters more than allocation.” ─William Bernstein

veindoc
Posts: 378
Joined: Sun Aug 14, 2016 9:04 pm

Re: Gut check: is this lifestyle creep?

Post by veindoc » Wed Feb 14, 2018 8:35 pm

3funder wrote:
Wed Feb 14, 2018 3:09 pm
I'm not feeling the lifestyle creep vibe here, so no.

Oh no? I am. You stated you are expecting a $40k increase and in your mind you have already spent half of it - new car, home renovations, international trip. Let me ask you something, if that $40k increase was not even a possibility, were you even considering an international trip?

Before you get on the offensive, let me just tell you I think you are doing fine. Saving 30% of your income is fantastic and continuing to save 30% as your income creeps up is even better.

Just as an example, when my husband went from resident to attending, we had zero plans for the extra money. Aside from maxing out all tax-deferred options, we did nothing different. The money just accumulated in the checking account and got transferred to savings. When the money in savings became sizable and our family grew, we started house hunting. We bought more house than we needed I think - our lifestyle creep. But for the first two years, our lives were essentially the same. Aside from putting away the money, we had no plans for it. If it went away, it would have had little impact on our lives.

But again, you are doing fine. But I would call it like it is. A creep, reasonable one, but a creep.

Admiral
Posts: 1392
Joined: Mon Oct 27, 2014 12:35 pm

Re: Gut check: is this lifestyle creep?

Post by Admiral » Wed Feb 14, 2018 8:47 pm

Personally I think if you're saving 30% of your income and maxing retirement accounts, you should do what you want with the increase. What's money for it not to enjoy life? Anyway it sounds like your going to save it anyway (car fund). You can always decide not to buy a new car and, voila, you've saved an extra 20k, or whatever.

Don't forget that 40k isn't really 40k (unless that's what the raise is after tax).

hazlitt
Posts: 41
Joined: Sun Jan 29, 2017 10:00 pm

Re: Gut check: is this lifestyle creep?

Post by hazlitt » Wed Feb 14, 2018 9:39 pm

There is absolutely nothing wrong with increasing your standard of living, as long as you tend to other priorities first.

I look at it as filling buckets. Fill up the tax-advantaged retirement bucket. Put some in the 529 bucket. Put some in the taxable account bucket. Put some in short term savings. Make an extra principal payment on your mortgage. But life is meant to be lived. If you constantly live like a pauper (unnecessarily) then you will likely eventually lose your motivation to save. Make an extra bucket for medium term savings. Use that bucket for awesome vacations or big purchases. Take some fruits of your labor. Just make sure that you never go into debt for these things and that your important buckets never go backwards.

User avatar
aspirit
Posts: 202
Joined: Wed Jan 03, 2018 12:52 am
Location: Bos/Mia-south

Re: Gut check: is this lifestyle creep?

Post by aspirit » Wed Feb 14, 2018 9:43 pm

Gut Check: How soon do you want F.I.?
Time & tides wait for no one. A man has to know his limitations.

SDLinguist
Posts: 78
Joined: Wed Jan 31, 2018 2:39 pm

Re: Gut check: is this lifestyle creep?

Post by SDLinguist » Wed Feb 14, 2018 10:11 pm

iceport wrote:
Wed Feb 14, 2018 7:12 pm
SDLinguist wrote:
Wed Feb 14, 2018 3:35 pm
meowcat wrote:
Wed Feb 14, 2018 3:04 pm
This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
+1

I would not call it lifestyle creep if it does not impact savings rate negatively and does not impact ones financial stability.
You might agree that it is irrelevant, but spending more money on goods and services (nicer cars, more toys, nicer or more vacations, etc.) is by definition lifestyle creep.

Not decreasing your saving rate is not the test of lifestyle creep; increasing your (real) spending rate is the test.

(As it turns out, there is an Investopedia definition: https://www.investopedia.com/terms/l/li ... -creep.asp. 8-) )
But by the definition of spending rate increase, keeping the same savings rate and spending rate would not be creep. The creep, even as quoted by investopedia article, is when retirement savings can't sustain pre-retirement spending because spending rate grows in relation to savings.

If someone makes 100k and saves 35%, spends 65% and then earns 200k and still saves 35% there is no change in relative savings or spending.

If you take the the absolute expenditure raising as lifestyle creep, inflation would be lifestyle creep over everybody's lifetime.

Taking the payed off mortgage example from the article, the mortgage is roughly a form of savings so when it is payed off and the income that was put toward savings is instead spent on new amenities the savings rate shrinks in relation to spending: lifestyle creep.

Lifestyle creep is moving to an unsustainable way of life given income.

3funder
Posts: 758
Joined: Sun Oct 15, 2017 9:35 pm

Re: Gut check: is this lifestyle creep?

Post by 3funder » Wed Feb 14, 2018 10:19 pm

veindoc wrote:
Wed Feb 14, 2018 8:35 pm
3funder wrote:
Wed Feb 14, 2018 3:09 pm
I'm not feeling the lifestyle creep vibe here, so no.

Oh no? I am. You stated you are expecting a $40k increase and in your mind you have already spent half of it - new car, home renovations, international trip. Let me ask you something, if that $40k increase was not even a possibility, were you even considering an international trip?

Before you get on the offensive, let me just tell you I think you are doing fine. Saving 30% of your income is fantastic and continuing to save 30% as your income creeps up is even better.

Just as an example, when my husband went from resident to attending, we had zero plans for the extra money. Aside from maxing out all tax-deferred options, we did nothing different. The money just accumulated in the checking account and got transferred to savings. When the money in savings became sizable and our family grew, we started house hunting. We bought more house than we needed I think - our lifestyle creep. But for the first two years, our lives were essentially the same. Aside from putting away the money, we had no plans for it. If it went away, it would have had little impact on our lives.

But again, you are doing fine. But I would call it like it is. A creep, reasonable one, but a creep.
Although I understand your point, I still can't bring myself to call this lifestyle creep; in my view, it sounds too negative for what OP is doing.

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Gut check: is this lifestyle creep?

Post by HomerJ » Wed Feb 14, 2018 10:25 pm

Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
I've heard the guideline that one should save half of any salary increase. I'm about to get a $40k increase in salary and I wonder if you think my plan amounts to lifestyle creep rather than following the spirit of the rule.

My draft budget does have $20k in "new" savings, but it's mostly to taxable for future spending that we have just been deferring until now: car replacement for when current car dies, future home renovation, our first international vacation. We already have adequate emergency funds.

We would hold our retirement savings steady at 30% of gross income, and max all tax-advantaged options for the first time. If I did not save for the medium term items, the money would go into a taxable retirement account, so the difference is in my AA (cash/CDs vs adding to three fund) and time frame.

Am I courting lifestyle creep or are taxable savings taxable savings?

ETA: The car would not be a Lamborghini. :shock:
I'm one of the people who recommend saving 50% of your raises.

I mostly think you're fine, because you're using the extra money for discretionary items. Home renovation, first international vacation, etc.

But you don't need to up your budget by $40k EVERY year do you?

Normally I'd say save $20k, and spend $20k... But I can understand if the FIRST year, you don't want to choose between a new car, home renovation, and a vacation.. You want them all...

But next year, I'd suggest saving $20k... That still gives you $40k this year for new stuff, and $20k next year for new stuff. Certainly you can save $20k from the $80k you're getting over the next two years right?

If you spend the entire $40k this year and next year and the year after that, you will indeed have experienced serious lifestyle creep. Because once you are used to spending the extra $40k EVERY year, you'll want it in retirement too...

And that means you'll need another $1 million saved to retire. Better to increase your lifestyle $20k a year (which is still pretty huge - $1,500 a month, every month, of extra fun spending!), and save $20k.

You'll only need another $500k saved to keep $20k flowing in retirement, and since you're saving the other $20k, it should be fairly easy to save up that extra $500k.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Wed Feb 14, 2018 10:41 pm

veindoc wrote:
Wed Feb 14, 2018 8:35 pm
3funder wrote:
Wed Feb 14, 2018 3:09 pm
I'm not feeling the lifestyle creep vibe here, so no.

Oh no? I am. You stated you are expecting a $40k increase and in your mind you have already spent half of it - new car, home renovations, international trip. Let me ask you something, if that $40k increase was not even a possibility, were you even considering an international trip?
Fair enough. I asked for a gut check precisely so I would hear from people who think I'm fooling myself. The international trip has been planned for a long time, but after retirement savings we couldn't find room for it from cash flow so kept putting it off from year to year.

User avatar
Tamarind
Posts: 1161
Joined: Mon Nov 02, 2015 2:38 pm

Re: Gut check: is this lifestyle creep?

Post by Tamarind » Wed Feb 14, 2018 10:49 pm

HomerJ wrote:
Wed Feb 14, 2018 10:25 pm
Tamarind wrote:
Tue Feb 13, 2018 3:31 pm
I've heard the guideline that one should save half of any salary increase. I'm about to get a $40k increase in salary and I wonder if you think my plan amounts to lifestyle creep rather than following the spirit of the rule.
I'm one of the people who recommend saving 50% of your raises.

I mostly think you're fine, because you're using the extra money for discretionary items. Home renovation, first international vacation, etc.

But you don't need to up your budget by $40k EVERY year do you?

Normally I'd say save $20k, and spend $20k... But I can understand if the FIRST year, you don't want to choose between a new car, home renovation, and a vacation.. You want them all...

But next year, I'd suggest saving $20k... That still gives you $40k this year for new stuff, and $20k next year for new stuff. Certainly you can save $20k from the $80k you're getting over the next two years right?

If you spend the entire $40k this year and next year and the year after that, you will indeed have experienced serious lifestyle creep. Because once you are used to spending the extra $40k EVERY year, you'll want it in retirement too...
Just to be clear, I'm not spending it this year. Vacation next year, car when the old one dies in 2-3, renovation when we can pay for it in cash so probably 6-8 years. As the items we are saving for happen, freed up cash flow goes straight to taxable retirement savings.

User avatar
iceport
Posts: 4006
Joined: Sat Apr 07, 2007 4:29 pm

Re: Gut check: is this lifestyle creep?

Post by iceport » Wed Feb 14, 2018 11:24 pm

SDLinguist wrote:
Wed Feb 14, 2018 10:11 pm
If someone makes 100k and saves 35%, spends 65% and then earns 200k and still saves 35% there is no change in relative savings or spending.
Are you saying that if a person doubles their spending, as long as their relative saving rate stays the same it's not lifestyle creep? Seriously? This isn't worth arguing about — especially because it doesn't pertain to the OP — but that makes absolutely no sense to me.

On second thought, that example is probably more like "lifestyle leap" than "lifestyle creep."
Last edited by iceport on Wed Feb 14, 2018 11:33 pm, edited 1 time in total.
"Discipline matters more than allocation.” ─William Bernstein

User avatar
HomerJ
Posts: 11832
Joined: Fri Jun 06, 2008 12:50 pm

Re: Gut check: is this lifestyle creep?

Post by HomerJ » Wed Feb 14, 2018 11:31 pm

SDLinguist wrote:
Wed Feb 14, 2018 10:11 pm
But by the definition of spending rate increase, keeping the same savings rate and spending rate would not be creep. The creep, even as quoted by investopedia article, is when retirement savings can't sustain pre-retirement spending because spending rate grows in relation to savings.

If someone makes 100k and saves 35%, spends 65% and then earns 200k and still saves 35% there is no change in relative savings or spending.
You have to be careful with large raises. Lifestyle creep may indeed hinder you retirement.

In earlier years you're not saving much relative to your final goals. When you increase your lifestyle substantially, your "retirement number" goes up as well. And you were saving a much lower rate for the first years.

Saving $30,000 a year easily puts you on track to hit $1.75 million ($70k x 25) in 30-40 years.

But if you jump to needing $140k halfway through your career, now you need to save $3.5 million in 20 years.

And if you get another big raise to $300k in your 50s, you better not increase your spending to $210k, because now you need $5.25 million to retire, and you only have the final 10 years of saving $90k a year to get there.

My point is you can't just increase your lifestyle forever, and keep your savings percentage the same.

At some point, you need figure out that you have "enough", and stop increasing your lifestyle. If you do this at a low enough number, and/or early in your life, this sets you up for an easy and/or early retirement.

User avatar
LittleGreenSoldiers
Posts: 52
Joined: Fri Nov 14, 2014 6:59 pm

Re: Gut check: is this lifestyle creep?

Post by LittleGreenSoldiers » Wed Feb 14, 2018 11:37 pm

If you have kids or plan to save even more. They are a very predictable life style creep and then some.

msk
Posts: 920
Joined: Mon Aug 15, 2016 10:40 am

Re: Gut check: is this lifestyle creep?

Post by msk » Thu Feb 15, 2018 12:37 am

YOLO! Save and invest 30% of all after tax income. Payment of principal (not interest) on your home's mortgage counts as saving and investing, not on consumables like cars. Blow the rest on any toys you desire. Worked for me. Retired at 55.

User avatar
meowcat
Posts: 387
Joined: Wed May 09, 2012 5:46 am

Re: Gut check: is this lifestyle creep?

Post by meowcat » Thu Feb 15, 2018 2:17 pm

iceport wrote:
Wed Feb 14, 2018 7:12 pm
SDLinguist wrote:
Wed Feb 14, 2018 3:35 pm
meowcat wrote:
Wed Feb 14, 2018 3:04 pm
This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
+1

I would not call it lifestyle creep if it does not impact savings rate negatively and does not impact ones financial stability.
You might agree that it is irrelevant, but spending more money on goods and services (nicer cars, more toys, nicer or more vacations, etc.) is by definition lifestyle creep.

Not decreasing your saving rate is not the test of lifestyle creep; increasing your (real) spending rate is the test.

(As it turns out, there is an Investopedia definition: https://www.investopedia.com/terms/l/li ... -creep.asp. 8-) )
I'm not arguing the definition of lifestyle creep, just that if he's saving 30% of his income, lifestyle creep is not something to worry about.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson

Dottie57
Posts: 4642
Joined: Thu May 19, 2016 5:43 pm

Re: Gut check: is this lifestyle creep?

Post by Dottie57 » Thu Feb 15, 2018 2:52 pm

For me, the benefit of the rule about lifestyle creep is the restriction on spending. The lower your expenses, the earlier you can retire or more well off you can be in retirement.


I've found spending on things gives me less enjoyment with each year that passes.

DC3509
Posts: 280
Joined: Wed Jul 12, 2017 7:25 am

Re: Gut check: is this lifestyle creep?

Post by DC3509 » Thu Feb 15, 2018 2:57 pm

HomerJ wrote:
Wed Feb 14, 2018 11:31 pm
SDLinguist wrote:
Wed Feb 14, 2018 10:11 pm
But by the definition of spending rate increase, keeping the same savings rate and spending rate would not be creep. The creep, even as quoted by investopedia article, is when retirement savings can't sustain pre-retirement spending because spending rate grows in relation to savings.

If someone makes 100k and saves 35%, spends 65% and then earns 200k and still saves 35% there is no change in relative savings or spending.
You have to be careful with large raises. Lifestyle creep may indeed hinder you retirement.

In earlier years you're not saving much relative to your final goals. When you increase your lifestyle substantially, your "retirement number" goes up as well. And you were saving a much lower rate for the first years.

Saving $30,000 a year easily puts you on track to hit $1.75 million ($70k x 25) in 30-40 years.

But if you jump to needing $140k halfway through your career, now you need to save $3.5 million in 20 years.

And if you get another big raise to $300k in your 50s, you better not increase your spending to $210k, because now you need $5.25 million to retire, and you only have the final 10 years of saving $90k a year to get there.

My point is you can't just increase your lifestyle forever, and keep your savings percentage the same.

At some point, you need figure out that you have "enough", and stop increasing your lifestyle. If you do this at a low enough number, and/or early in your life, this sets you up for an easy and/or early retirement.
This is a very interesting response. I think it matters how you are spending the money. For instance, if you taking the raise and blowing it all on what I would call "daily life expenses" -- eating out to lunch, buying the most expensive clothes at every turn, etc. -- then, yes, you will eventually run into a problem because you can't save enough to keep up with the increased cost that will come along in retirement.

But what if you are spending money on discretionary things that you don't anticipate doing in retirement? For instance, what if the increased cost was for vacations you will be unlikely to take when you are in yours 80s, or buying a dream car now that you won't buy then, etc. Or making your house nicer and you will either own it outright then or have sold it by that time? I don't think the lifestyle increases are that dangerous then because you are not increasing spending in a way that will impact you in retirement. Put another way, I think you need to figure out a base line of what you need in retirement; if your current savings are enough to meet that, then there is nothing wrong with spending more of the raises now on things you won't need or want in retirement.

User avatar
iceport
Posts: 4006
Joined: Sat Apr 07, 2007 4:29 pm

Re: Gut check: is this lifestyle creep?

Post by iceport » Thu Feb 15, 2018 4:04 pm

meowcat wrote:
Thu Feb 15, 2018 2:17 pm
iceport wrote:
Wed Feb 14, 2018 7:12 pm
SDLinguist wrote:
Wed Feb 14, 2018 3:35 pm
meowcat wrote:
Wed Feb 14, 2018 3:04 pm
This is just my opinion but if you are saving 30% of your income and continue to do so in the future, lifestyle creep is irrelevant.
+1

I would not call it lifestyle creep if it does not impact savings rate negatively and does not impact ones financial stability.
You might agree that it is irrelevant, but spending more money on goods and services (nicer cars, more toys, nicer or more vacations, etc.) is by definition lifestyle creep.

Not decreasing your saving rate is not the test of lifestyle creep; increasing your (real) spending rate is the test.

(As it turns out, there is an Investopedia definition: https://www.investopedia.com/terms/l/li ... -creep.asp. 8-) )
I'm not arguing the definition of lifestyle creep, just that if he's saving 30% of his income, lifestyle creep is not something to worry about.
I understood your post, meowcat. And I'm not arguing that you're wrong or right. :beer It just seemed like SDLinguist was taking it a step further to argue that spending more wasn't lifestyle creep.

Transitioning to a higher baseline spending rate (measured in dollars/year, not percent of income) is what it is. Whether someone wants to label it lifestyle creep or not doesn't change the ramifications. (The kicker is that, in general, above a certain level it doesn't really increase happiness.)
"Discipline matters more than allocation.” ─William Bernstein

Post Reply