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  • Brooklyn Scott

I don’t have any money to save or invest: the lifestyle creep

There are people in this world who may not earn enough to cover the basic necessities – food, clothing, shelter. There are others being weighed down by student loans or other debts that make it difficult to save. There is another group of people earning $250,000+/year who believe they do not have money left over to save and invest.

The truth is there are people at every income level who spend more than they earn, and others who are exceptional savers and live below their means.

Saving and investing was entrenched in me from a very early age (thanks, Dad). So even when I was earning very little (read: my allowance) a certain amount was always designated for investments and savings. Throughout high-school and university a minimum amount (usually $50/month was put into a mutual fund to save).

I have always been required to pay myself first and thank goodness! I think back to when I worked part-time waiting tables during university. I was very fortunate in that my post-secondary education was covered by both an RESP established for me by my parents and scholarships that I earned. I think of the money I was bringing in (probably $450/bi-weekly in wage and tips), and what little expenses I had (basically gas for the used car that was passed down to me, clothing and entertainment) and how I never had anything left over at the end of the month (beyond what I automatically invested). Or how when I was first married, had no kids, earned about four times the amount I did while on maternity leave last year and somehow I never had any “extra” then. But somehow, living on a quarter of my salary last year (55% of my wage from working half-time the year previous), I continued to “pay myself first” and somehow we survived. To be fair, my husband carried more of our expenses during this time, but we never did without, and we didn’t rack up any debt either.

What I am attempting to illustrate through this anecdote is that I have earned varying amounts of income, had diverse levels of expenses and somehow it has always felt as though I’ve only had ‘just enough’.

The point I am trying to articulate is this: you will live on what you allow yourself to spend.

The graph above is attempting to illustrate the anecdotes I just shared with you – showing the relationship between my earnings over the last several years (red), expenses (green), discretionary spending (purple) and my savings (teal). Full disclosure: it is not entirely accurate but is being used to demonstrate how my earnings have varied, expenses and savings have increased over time and my discretionary spending has decreased drastically since having two children (hmmm I wonder why?). In fact, in the last year my expenses exceeded my income (and this is where the income of my husband has come into play). You can see pretty clearly how earnings and discretionary spending are correlated. When I earned the most money (2011) I also spent the most (on what? I don’t know). Thankfully, I continued to pay myself first and the amounts contributed to my savings have continued to grow.

There is a phenomenon known as “Lifestyle Creep” or “Lifestyle Inflation” which simply translated means as you earn more, you spend more. What you may once have considered luxuries (going out for a nice supper, purchasing a new car) becomes necessity (we NEED to treat ourselves, my car is a reflection of me – I can’t purchase used). What were once rewarding experiences (new clothes, a latte) become the norm, and essentially, over time lose their luster. So, what can you do to avoid Lifestyle Creep and save for your future?

How to avoid Lifestyle Creep

First and Foremost:

PAY YOURSELF FIRST – designate an amount to automatically deduct from your paycheck to go into your savings and investments. Also – do not make these amounts easily accessible: If you can see it, and easily transfer it from one account to another it probably is never going to amount to much (out of sight = out of mind). Increase this amount in relation to your increased earnings. Raise at work? Increase your savings.

Reward yourself – WISELY – if you see something you believe you absolutely need, wait a designated amount of time (30 days, 60?) before making the purchase. If you still want it (and have the money for it after your waiting period) you may purchase it. This is also known as thoughtful purchasing or purchasing with intent. Set up a “fun fund” of savings for these rewards – that way you can actually afford to purchase them with CASH when the time comes.

Establish Goals – writing goals down and keeping them in a place where you can review them often will help motivate you to stay with your plan.

Finally, if you’re ready to kick the creep to the curb, pay yourself first, and invest in your future, please give me a call, I would love to have a chat!

Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.

Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.

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