How Doctors Should Address Lifestyle Creep

Allowing ourselves to spend our hard-earned money is critical to finding happiness in our careers.  Though I adhere to commonly agreed upon personal finance advice such as living ‘like a resident’ and well below your means, if you are overly frugal, you will deprive yourself of the enjoyment that is deserved when your income grows.  Money may not buy happiness directly, but it can afford us joy, new experiences, the ability to help others, and a sense of achievement.  All of these are welcome aspects of building wealth and should be celebrated as your financial standing improves. 

However, allowing these expenses to inflate too quickly can put you in a very difficult situation.  This is often why so many stories come across your feed discussing physicians with six or seven-figure incomes who still live ‘paycheck to paycheck.’  Having a high income and being wealthy are not synonymous.  This week, we tackle the latest chapter in our Doctor Money series.  Let’s discuss lifestyle creep, the right and wrong way to do it, and a strategy to allow yourself to spend purposefully.  Here is how doctors should address lifestyle creep. 

Doctor Money: A Personal Finance Guide for Physicians

Chapter 11: How Doctors Should Address Lifestyle Creep

For those of you just chiming in, this marks the eleventh chapter of our Doctor Money finances series.  I am using our weekly blog posts to create a future book that hopefully will apply to medical trainees and early career physicians looking to build generational wealth, get out of debt, and take control of their financial lives.  This week, we are tackling all things related to lifestyle creep. 

What is Lifestyle Creep?

So, what is lifestyle creep exactly?  It is also commonly referred to as lifestyle inflation.  Investopedia defines lifestyle creep as the process of raising your standard of living alongside your rising discretionary income.  As a result of this process of inflating your standard of living, former luxuries become new necessities.  It can happen gradually; without the consumer realizing it, it sneaks or ‘creeps’ up.  The layman’s description is: The more you make, the more you spend. 

The first step to combating lifestyle creep is creating and adhering to a formal budget. The idea is that one must first master the skills of creating a budget and sticking to it before one can safely expand one’s lifestyle expenses. 

The thought being that if you can create a (relatively) fixed budget, then no matter how much your income increases, it should not affect your lifestyle as your fixed expenses are predetermined.  This excludes unexpected expenses and emergencies, but if you read our earlier chapters on emergency funds and asset protection, this should not cause you any anxiety. 

To better understand the implications of lifestyle creep, let’s take a moment to highlight some of the most frequent offenders. 

Frequent Offenders

Lifestyle creep can technically affect any and all aspects of our lifestyle. However, I think it is important to highlight some of the more frequent offenders to describe how this commonly affects individuals’ lives. Though this is in no way an exhaustive list, the following represents what I believe to be the most common culprits of lifestyle creep and financial pressures in individuals’ lives. 

Housing

Aside from educational debt, housing is commonly the largest expense we will make in our lives.  Last time, we published an article comparing renting versus purchasing a home.  Here, we worked to highlight how to best calculate the most cost-effective way to acquire housing.  However, I so commonly see individuals inflate their lifestyle by overextending themselves when buying a home. 

Most don’t understand that, unless you can shell out a substantial downpayment, your home is often accompanied by higher insurance costs, more square footage then expects nicer furnishings, increased utility costs, and often the expenses associated with repairs or remodels.  The decision to purchase a home or upgrade is not to be made lightly.  Take the time to review all the costs associated with housing before making a decision. 

Cars

We all have seen it.  A colleague gets a new job or a promotion, and shortly after, they roll up in a brand-new SUV or sports car.  So many jump to the conclusion that the pay raise was substantial, but in my experience, these are often leases or being financed.  Though I do not wish to tackle the pros and cons of leasing or financing a vehicle, automobiles, much like houses, can often place individuals in financially difficult situations.  No one should place themselves in debt for a car.  Further, why subject yourself to a monthly payment?

If you need a car, new or used, save for it at a safe rate (more on that later) until you can purchase one.  If you wreck your only car, take the money you receive from insurance payout, supplement it with your emergency fund, and purchase an affordable car outright. Then, replenish your emergency fund.  This way, you are avoiding debt and avoiding a monthly payment.  Commonly, there are significant gaps between what you want and what you need.  Don’t spend so much on a vehicle that your fixed budget is operating on a thin margin.

Eating Out

With current delivery apps, DoorDash, Uber Eats, you name it… getting food delivered or made for pick up can be done with the click of a button.  It is now exponentially easier to order out than ever before.  For times when no one wants to cook or when your day is busy, sure, order some takeout… but make sure you don’t make it a daily occurrence. 

I am not implying that by never ordering out, physicians will be wealthier.  Honestly, it is likely a nominal expense.  However, as mentioned earlier, the practice of ordering out becomes normal if done with regularity.  With normalcy becomes habit.  Once the purchase of takeout is habitual, you open up opportunities to make most of your meals a larger and more regular expense.   This type of spending can have a snowball effect over time.   Make sure to prioritize a portion of your budget for eating out; this will keep you honest regarding what you can realistically afford from month to month. 

Expensive Hobbies

The last culprit I commonly see pressure finances are expensive hobbies.  These often include golfing alongside a country club membership, boating, owning and flying planes, to name a few.  Though these are fun and entirely possible if your finances are in order and you have built substantial wealth, often, these can pressure early physician finances.  Don’t take up expensive hobbies before eliminating your debt and building a solid and secure financial foundation.  These are likely to require significant portions of your income and have little to no return on your investment. 

True, these things can bring personal happiness, which I completely acknowledge, but there is a time and place for these purchases, and often this is not until you have your financial affairs in order. 

Active Versus Passive Lifestyle Creep

Now that we have discussed lifestyle creep as a concept and potential threat to your finances, let’s talk briefly about how taking an active approach to lifestyle creep can help you inject your finances with more wiggle room as your income increases without feeling the need to inflate your lifestyle to match your pay raise. 

Passive Lifestyle Creep

In order to discuss active lifestyle creep, we need to first understand what passive lifestyle creep is.  This, by definition, is essentially the slow, sometimes insidious increase in expenses that stress your monthly budget.  Overwhelmingly, this is done with minimal to no forethought.  These are the extra coffees that somehow go from splurge to routine.  The extra streaming services you bought to watch a single show only to forget to cancel your subscription.  This new car you are financing comes with a monthly payment and subsequently increased insurance costs.  This is the result of shopping at the new all-organic grocer that opened up over your usual spots. 

Don’t you see?  Passive lifestyle creep is rarely the result of one single purchase (aside from maybe a new home or car) but the slow accumulation of many and many serial purchases that often transition from rare events to habitual expenses.  Passive lifestyle creep is what you want to avoid.  This is why having a clear and comprehensive budget combats it.  It can be a layer of protection and alarm you when you have inflated your lifestyle beyond your budget.  How does one combat or prevent passive lifestyle creep?  Read on…

Active Lifestyle Creep

Active lifestyle creep is more like a small pre-meditated budgetary injection that offers a predetermined increase in your monthly budget.  This can occur when you get a planned or unplanned bonus.  It can occur when your salary increases or you receive a promotion.  It can occur when you change jobs, and your income improves.  It can be the result of a productive side gig.  No matter the reason for extra income, you can allow yourself to inject your finances with some extra money that will allow you to potentially make a splurge purchase without affecting your overall finances and budget. 

The 10% Rule

Here is my recommendation.  Whenever you receive a pay increase or a bonus, take ten percent (10%) and do whatever you want with it.  Infuse your budget, buy a new electronic, place it in cryptocurrency, whatever.  But spend it on yourself or something you want.  Take the remaining 90% and save/invest it.  This affords you the opportunity to spend frivolously while still taking the overwhelming majority and investing in your future. 

If this is a bonus, spend 10% on whatever you choose, who cares?!  Go crazy.  Take the remaining 90% and put it towards your financial goals.  Build an emergency fund, invest it, do your backdoor Roth IRA, place it in your children’s 529 accounts.  No matter where you put it above, you will be housing it in a safe vehicle and exposing that money to the market so it can get to work for you. 

If this is a pay increase or a salary bump/promotion, then allow your budget to increase by 10%.  Perhaps that is a few extra streaming services or more date nights eating out.  There are about a million ways to inflate your lifestyle by ten percent.  However, take the remainder of your pay raise (the other 90%) and use it to make sure you are maxing out all of your retirement accounts, paying down debt, saving for children’s education, and investing.  All the same recommendations as with a bonus.  Use the majority of your pay raise to tackle big, important financial goals.  This will allow you to feel like you are rewarding yourself while still overwhelmingly making sound financial choices. 

How Doctors Should Address Lifestyle Creep

So, how should doctors address lifestyle creep?  They should take a very active approach to their lifestyle inflation.  The overwhelming majority of consumers (not just physicians, but everyone) allow lifestyle to creep passively.  That is why it ‘creeps’ by definition.  Lifestyle creep is slow, inconspicuous, and often rooted in joy, even if only briefly. 

However, if left unchecked, it can spiral out of control and lead to budgetary pressures. Once this has occurred, it takes a massive effort to undo the damage, including having to call and cancel countless subscriptions, potentially trading in your vehicle for a cheaper one etc. 

Doctors should anticipate their supplemental income (side gigs, promotions, pay raises, bonuses) and first celebrate and reward themselves using a small portion of that income.  My recommendation is ten percent.  Take this money and spend it on yourself.  You deserve it.  Take what remains (90%) and put it towards your personal financial goals.  This could be debt elimination, saving for your children’s education, or maxing out all your tax-advantaged retirement accounts.  If you have created a financial plan, use it to prioritize where this money should go. 

If you can control your evolving income, you will find yourself actively managing budgetary increases, tackling your financial goals, and rewarding yourself regularly, all while preventing the insidious form of lifestyle inflation. This is how doctors should address lifestyle creep. 

Stay motivated!

The Motivated M.D.

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This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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