Today’s Practical Planning Tip we will continue our discussion onMoney Advice Every Parent Should Give Their Children.
Avoid lifestyle creep: You can get immense joy in life without spending increasingly more money in an effort to keep up with the joneses while simultaneously derailing your finances.
As kids grow up, graduate college, enter the workforce and begin to make money, there is a natural desire to spend that money on more things. This temptation to spend more as one’s income increases is known as “lifestyle creep.” This is something that everyone can relate to. It is imbedded in our communities. Lifestyle creep will not lead to more satisfaction. Instead, it usually leads to more financial strain as one tries to maintain an increasingly expensive lifestyle.
One of the smartest decisions a young professional can make is to continue to live like a student until they bolster their financial reserves and get a handle on their cash flow. For those fresh out of college and accustomed to living with roommates, continuing in a shared living space will not impact their lifestyle, but will allow them to save more money for the next stage of life. After I graduated Yeshiva University, I lived in a dilapidated townhouse in Washington Heights with nine roommates. Looking back years later, it doesn’t seem like a pleasant way to live. However, I saved money on rent and utilities, had a wonderful social life, and was able to max out my 401(k) on an entry level salary. It turned out to be both a great life and a wise financial decision.
It's important for parents to impress on their children the very important message of AVOIDING lifestyle creep. This WILL have a tremendously positive impact on their lives.