Meaningful Returns

If your household income is increasing over time faster than inflation, have you decided what you’re going to do with the growing extra? Because even if you don’t do something intentionally with it, you will do something–the excess doesn’t just disappear into the ether–and generally without intention you have waste. Or, to use a nice bit of financial parlance, Lifestyle Creep.

Lifestyle Creep is problematic for a number of reasons, but from a purely financial standpoint the angst primarily relates to the fact that you’re burning the candle at both ends.*

*Which is to say that without intentionally doing otherwise, your spending will increase dramatically over time on a relative basis while your saving will not, such that by the time you need to spend your savings you will have gotten used to an inflated lifestyle which your savings will have practically no chance of affording.

Though it takes an uncommon level of discipline to prevent Lifestyle Creep, the easiest way to do so is to automate the decision. Each time you get a raise, save half of it immediately, and do what you will with the rest (unless of course you or a qualified professional has determined that you need to save the entire raise). Though there are certainly other, more thoughtful ways of preventing the ol’ Creep, this method gets good marks for its simplicity and effectiveness.