If you've recently come into more money (congratulations!), it's understandable that you'd want to take advantage. Maybe you decide to book that trip you've always wanted to take but couldn't afford, or you move to a new apartment with a higher rent. That's all great for the time being—but eventually, with the additional high-value purchases, you may find that you're back in the same overall financial position as before you received that raise or influx of cash. Enter: lifestyle creep, which describes what happens when you start to amass more money and increase your spending to match.
In this week’s episode of the The Well+Good Podcast, host Ella Dove speaks with financial content creator Vivian Tu ("Your Rich BFF") about lifestyle creep and how to avoid it. Tu, who used to work as a trader at J.P. Morgan and strategy sales partner at BuzzFeed and has since been doling out financial tips on TikTok, says lifestyle creep is a nearly universal experience. "It's happened to me, and it's happened to your best friend, and it's really hard," she says. But even so, it's not inevitable if you take some precautionary measures—and if you're experiencing it already, there's a way to fight back against the creep.
Listen to the full podcast episode here:
While receiving more money certainly makes it easier to spend more freely, it's still important to create and stick to a budget with your new financial situation in mind, according to Tu. This way, you can ensure that you continue to allocate funds toward your short- and long-term financial goals while covering your expenses and spending on things that bring you joy. Specifically, Tu advises allocating 50 percent of your take-home pay to "needs" (aka expenses), 30 percent to "wants" (things you desire but don't need), and 20 percent to investing, saving, and/or paying down debt.
"It's so important [to save and invest] because it's today-you taking care of future-you." —Vivian Tu, financial content creator
Within that budgetary pie chart, it's essential to protect that final savings piece. "Lifestyle creep happens when people start to cut out that 20 percent," says Tu. "It's so important [to keep that up] because it's today-you taking care of future-you."
Figuring out exactly how to do that, however, is often easier said than done. That's why Tu has created what she calls the S.T.R.I.P. method (which stands for "savings," "total debt," "retirement funds," "investments," "plan"), a five-part plan designed to help you manage the "future-you" part of your budget. Read on to learn how you can use the S.T.R.I.P. method to build wealth while tamping down on lifestyle creep (or avoiding it altogether).
How to use the S.T.R.I.P method to build wealth
This part of the plan involves saving between three and six months' worth of living expenses to account for emergencies that have financial implications. For instance, let's say you get laid off without much severance, you get injured and are faced with a high medical bill, your car gets damaged and needs an expensive repair, and so on. In these cases, having the above emergency fund is essential for avoiding even more money issues down the line, in terms of debt, says Tu.
T: Total debt
Do an audit of any and all debts, and rank them from highest to lowest interest rate. Think: credit-card debt, student loans, and mortgages. Prioritize paying off the highest-interest debts first because they accumulate the fastest, says Tu. "Anything above seven percent is a top priority, and anything below that is on the back burner."
R: Retirement funds
Once you're able to address your debts with the highest interest levels, and you're making the minimum payments on debts with lower interest rates, Tu advises focusing on retirement planning. This piece of the puzzle encompasses maxing out your contributions to a 401k, if you have one through an employer, or opening a ROTH IRA or SEP IRA, if you're self-employed or a small-business owner.
It's also important to devote a portion of your take-home pay to investing, if you're left with a surplus after retirement contributions. This can certainly mean buying stocks and bonds, but according to Tu, it might also include investing in yourself by spending money to learn new skills that can make you a more valuable employee at work or increase your earning potential more broadly, she says.
The last (but certainly not least) piece of the S.T.R.I.P. method to build wealth is the planning part. Consider how you want your life to look in five years and in 10, and set goals that will help you get there. This way, you'll also have in your mind a version of future-you to anchor all the saving and investing you're doing above. To hold yourself accountable, Tu advises writing goals down and telling a friend or family member who can serve as an accountability partner.
To learn more financial tips for fending off lifestyle creep, listen to the full episode here.
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