The “Right” Amount of Lifestyle Creep (Plus, Revealing 5 Years of Mine)

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If you've ever waded into personal finance content, you’re probably familiar with lifestyle creep. It gets a lot of airtime because it’s a natural financial experience: to spend more as you earn more. But because there's no positive equivalent about intentionally upgrading your lifestyle, all enhancements are cast through this "to-be-avoided-at-any-costs" lens.

Fortunately for us, my evolution on the subject has been entombed for eternity on the internet. I dug through five years' worth of posts for this episode…and I share the equation that helped me determine "how much" creep is encouraged.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our Chief Content Officer and additional fact checking comes from Kate Brandt.

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Transcript

Transcript

When we decided to do an episode about lifestyle creep, a foggy deja vu washed over me. I was convinced we had covered it on the show before. So I quickly googled “Money with Katie lifestyle creep” as one does for their own five-year backlog. But no such episodes were returned. Only a smattering of old blog posts. So very curiously, I opened each post, and for an afternoon I just sat there and ingested years' worth of my own evolving opinions on the topic. The posts chronicle my journey with lifestyle creep over roughly six years and many tax brackets in a way that would be hard to honestly recreate now without this unforgiving internet archive of unfiltered takes.

Welcome back to The Money with Katie Show. I'm your host Katie Gatti Tassin, and because I've covered this topic so many times from so many different angles over the years, but have never done so in this medium, I thought it would be fun today to take a little stroll down memory lane and deconstruct how my belief system about lifestyle creep has evolved over time.

Originally, my vision for this episode, I'll be honest, it was lifestyle creep through the lens of influencer culture, and I still want to explore the role of influencers in our consumerism and spending preferences and habits at some point, but meandering through my own changing philosophy quickly superseded my original thesis. So I'm going to go where the curiosity takes me.

When I first learned about the concept of lifestyle creep in 2018, also known as lifestyle inflation, it was a term that described this insidious enemy to financial freedom. Inflation is actually a fitting word choice in that sense as its intended in the personal finance literature, at least to convey how the expense of your lifestyle grows while the enjoyment you receive from it tends to stay the same. It's considered the reason people might not naturally save more as they earn more because without a strategic plan in place, they sleepwalk into more expensive habits and transactions.

So the thinking goes that as you earn more and you have access to more money, you'll inevitably fall victim to the hyper-natural human tendency of using more resources. It's noteworthy that there's no equivalent positive descriptor for what it's called when you earn more and upgrade your lifestyle intentionally. Just this one moniker that's often used interchangeably, whether it's constructive or detrimental.

And we'll be right back after a quick break.

Okay, so let's start with some initial impressions. I think it's best to deep dive into the deep end first because I sorted these posts in chronological order. So I discovered this piece that I had written in 2018, which had actually been published first on a different site that I poured over as one of the first pieces on money with katie.com. And amazingly, I used the phrase “conscious consumption”, which honestly startled me with its high mindedness given the fact that this was my era of using phrases like “balls to the wall” and “buckle up Karen.” So I was like, oh, conscious consumption, who is she?

But right away something struck me about the way I once discussed the temptation of lifestyle creep. It pertained almost exclusively to small discretionary purchases that mostly constituted really innocuous little dopamine boosts throughout the day. So a few telling examples from the article include artisanal muffins and those $20 xhilaration tops from Target's clothing section. So in other words, it was associated with mindless spending that rescued me from unpleasant moods like boredom or sadness.

There was an almost monk like quality to the suggestions that I was embracing. I wrote, “Imagine waking up every day knowing you already have everything you need.” Okay, Jay Shetty. I also noticed this theme in a 2020 blog post about the relationship between minimalism and financial independence. I had written, “The state of wanting creates dissatisfaction.” I mean, girly pop was just Edgar Allen Poe-ing all over that Squarespace domain.

And I'm making light of it, but it's true in a sense that there's absolutely power and contentment that's not wrong. But there's another side of me that feels like there might've been something a little more sinister going on beneath the surface, the worldview I was publicly experimenting with positioned hoarding cash rather than using it to boost your mood or brighten your day as better.

And the repetition of this muffin example especially stuck out to me because I remember this time period really clearly and why I was clinging to this cursed pastry reference like it was the last life raft on the Titanic. I would spend $2, yeah, two bucks on a scone or muffin in our company cafeteria to break up the monotony of most of my mornings. And the fact that I was punishingly denigrating that choice — as evidence of my own inability to plan ahead or talk myself out of an unpleasant mood without the assistance of refined sugar rather than a really cheap way to make sitting in a cubicle all morning a little more exciting — was fascinating.

I wasn't rolling in dough at the time. Well, I guess unless you count pastry dough, because I did have plenty of that and I felt a little bad for myself rereading how restrictive I had become with my spending on even the smallest of indulgences.

All that to say I'm on board with the idea that spending money on cheap thrills can become an expensive treadmill, but it's clear to me now that this has the potential to get taken to unhealthy extremes and a spoiler, I sure did. I also clocked it as interesting because most of my later coverage deviated from this shop-y world of procuring one's 12th pair of black Lululemon leggings and graduated to discussions of moving into bigger homes or buying luxury cars. And even then, six years ago in the nascent of my financial worldview, I recognized that consumerism was psychologically slippery territory for me.

But in reflecting on it now, I don't think those purchases deserved the level of demonization I assigned to them. Even on my below median income, a $2 daily scone was not breaking my bank and it really was making my first challenging days as a full-time employee more enjoyable.

Still this so-called slippery slope concept is something that comes up a lot in conversations with readers and listeners. People will reach out to me and tell me they worry that allowing themselves any indulgences again after committing so wholeheartedly to financial asceticism might somehow undermine the financial progress they've made as though they can't trust themselves to seed an inch of budgetary breathing room without taking a Roth IRA-destroying mile. This same fear of backsliding of returning to bad habits appeared more than once in my coverage in the years that followed. So there was an equation that I created as an attempt to put some quantitative bumper lanes around these choices that I'm going to explain at the end of this episode.

But I'll let 2023 Katie explain her reasoning for creating it. She wrote, “Once I found myself graduating from immediate income to a higher one, I straddled the line between two worlds. Do I maintain my exact same lifestyle and invest everything extra? Or do I recognize that I can afford a little lifestyle creep?” In other words, I was wondering how much lifestyle inflation is okay?

I wrote, “The hard part is that there is no rule of thumb for how to handle such a situation. I felt silly skimping on brand name orange juice while making multiple six figures, but I was also terrified of into the old spendy habits that used to drain my checking account every month.” Just because I was making more money didn't mean I was wealthy and I struggled to find balance and not for nothing. The implication that being wealthy would be the state that would permit brand name orange juice is interesting here too.

Now, this was written in 2023 looking back on the last few years, but I mean it still absolutely resonates with me because there's a difference between being motivated by fear and being motivated by a generative sense of possibility. I was not operating from a posture of “Holy shit, look at how much potential this income is unlocking for me. How can I joyfully approach my spending in this new context? How should my life probably change?” No, it was a white-knuckle grip on the side of the pool going, “Okay, don't f*** this up. You have a lot of money now, but that does not mean you always will. You better be careful. Don't get too crazy.” There was almost a paternalistic untrusting side-eyeing of myself that prevented me from fully enjoying something that should have been pretty exciting.

Another post that I wrote in 2022 titled “An Honest Look at My Lifestyle Creep” featured an almost penitential tone in it. I contended with some of the truths about frugality that extreme personal finance camps teach, and I wrestle with the guilt that I felt for spending more like this entire thing is apology laden — I can explain! It's not that bad! Think about inflation! — but it's clear I lived in a state of constant fear about this backslide since I had so thoroughly convinced myself again in writing on the internet in tombed for eternity that I no longer cared about things like “red bottom shoes”, post-financial awakening. I was horrified when I found myself spending $1,000 on them in a fugue state a few years later, and the piece reads like me coming clean to an unseen audience of people that maybe I wasn't as much of a reformed materialist as I thought I was.

Embracing financial prudence had meant disowning material interests permanently or so I thought, and I wasn't sure how to square financial responsibility with the fact that my material interests were still very much alive and well. I wrote, “This blog post felt important for a few reasons. We so often hear from staunch FI/RE advocates about their Spartan monthly budgets, Costco trips, and 10 day meal prep schedules, which allow them to spend less than $20,000 per year. But we rarely hear from a staunch fire advocate-turned-aspiring-high-roller. Hello, it's me.” I described the way that I formerly would silently judge my friends who would pay $12 for avocado toast and then sit there and calculate how many minutes of retirement they had sacrificed in doing so, and how I had come around to realize that it's possible to indulge sometimes without being a morally corrupt cupcake of a millennial. I mean, talk about Freudian layers!

More recently, you may have caught my piece, Purity Finance, about how the edicts of mainstream personal finance moralize spending is bad and saving is good. And my previous word choice of “morally corrupt” really leapt off the page at me as I read it back. Even the qualification that one should only indulge sometimes made me giggle. I was really hedging. I was dipping my toe into the waters of frivolity and I was unwilling to concede that even the 30% spending 70% saving described in the post was nowhere near frivolous.

If you haven't read the Purity Finance piece yet, it basically draws parallels between intense personal finance doctrine and religious fundamentalism, denial of self, a lot of emphasis on the value of suffering and a relatively anhedonic worldview that's pretty skeptical of things that are considered excesses. “Go buy your secondhand hair shirt from Goodwill and stop scrolling on Revolve, you shallow piece of shit.” Someone on Instagram pointed out parallels to diet culture too, which I thought was especially apt, the cycle of binging and restriction and striving for a “perfect” execution that doesn't really exist.

We'll get right back to it after a quick break.

So where does this lead us? There are kernels of mathematically sound truth in some of what I was and still am born against, which is that mindlessly spending more as you earn more does little to improve your experience of life and can function to trap you in work that you don't want to do. This is traditionally what lifestyle creep content so earnestly warns against. For example, in 2021, I published a post that posed a simple question: Is being rich a trap?

It was inspired at the time because I had a conversation with someone who was worth well over $10 million, but who insisted that they still worried about money all the time. And if you look at their lifestyle, it's easy to see why: flying private, frequent expensive vacations, multiple children in private school, designer outfits head to toe. This lifestyle requires a fire hose of capital to maintain. So it tracks that if your needs scale up proportionally with your income, yeah, you're not going to experience the marginal breathing room that often allows you to stop worrying about your finances.

Perhaps the funniest line in this piece was, “A million bucks used to sound like a summer house in Aspen and a moderately sized boat, but now it sounds like literal freedom from ever having to work again.” I'm not sure what's more adorable that I once thought you could buy a house in Aspen for a million dollars or that I thought once I had a million dollars I'd be free from ever working again at age 27 before I even had children. Though I really appreciate the sentiment KG, I really do.

But the conversation and this resultant writing was my way of asking, is our desire for more innate or learned the person's response to me that they still worry about? Money constantly sent me into an existential spiral about what the point of accumulation is if there's never an amount above which you can release your grip. It inspired me to double down on frugality and even more fervently reject the idea that spending money could be a joyful and valuable thing because I perceived this person's entire life to be the ultimate lifestyle creep cautionary tale. Meanwhile, they were dining at five star restaurants in Paris and getting their company valued at a billion dollars. So yeah, real travesty, such a cautionary tale.

I don't think I realized how much this fear of scaling up permeated my relationship with money until I reviewed a much more recent post in 2023 about my lifestyle creep reversal success story through this new lens. It wasn't that there was anything all that's shocking in the piece, like I mostly just recounted how we got our food spending back under control.

But it was telling that I could feel a palpable sense of relief that I had managed to downsize in a certain arena after years of feeling as though my fixed expenses had become a runaway freight train. After all, this is a common thread in my work, the idea that lifestyle creep only tends to creep in one direction and that it can be really hard to go backward once you've taken a step up the metaphoric ladder.

One way around this is often taking pains to define what's a good thing to spend money on and what's not. In other words, where you're likely to get a high ROI for your dollars spent versus a receipt drawer full of regret. And sometimes as finance writers, we give examples of good spending and bad spending to convey when something may or may not be worth the splurge. For example, most discretionary spending that codes as feminine or is associated with the women be shop in trope per my example about the magnetic allure of a target. Fast fashion top is typically tossed in the bad category. Same thing goes for things like luxury vehicles or paying more than you would need to for a service that you could have gotten more cheaply.

But in an attempt to be illustrative in our charge to spend according to your values, we often inadvertently define what your values be. Everyone knows that the correct answer is something like travel or experiences, ignoring the homebody who may genuinely get no greater joy than ordering in a takeout menu full of lo main and orange chicken. I make no judgments, right? But in the process of being educational, I think we can rob people of learning how to develop their own unclouded spending preferences, even if their spending preferences don't broadly align with ours or what our culture tells us we should value.

By definition, I cannot prescribe to you what your values are, where money can bring you join your life. But I will share the little formula that helped me think more realistically about how to scale up safely baby steps.

Okay, because well, I think the ultimate goal is to get to a point where you can approach these decisions intuitively and with more self-trust. The reality is that financial stakes can feel very high, and sometimes having some mathematical guidelines or rules of thumb to fall back on can help develop a foundation that we can adapt over time.

So without further ado, this is my “Don't Live Beyond Your Assets” formula.

I'm not sure how much I've referenced this equation on the podcast before, but I know the blog post where I shared it has been backlink a lot in personal finance media and forums galore. So one such backlink actually took me to thread where people were arguing about it and someone complained that my writing style was “the most obnoxious thing they'd ever read,” which I found oddly titillating given the forum's purpose was to collect people who spend their free time anonymously discussing math, but to each their own.

The intent here is to give you a second data point to use beyond your income in determining how much money you could spend guiltlessly without imperiling your financial future: your invested assets. So widening the aperture in this way allows you to give weight to what I would say is arguably the more meaningful permanent variable in your financial life, your invested assets as opposed to basing 100% of your spending decisions on your current subject to change. You are an at-will employee income, which might feel a little wishy-washy and scary.

This guidelines should be especially helpful to high earners on their way to financial independence who want to understand how much they can safely indulge with their incomes. So it's pretty simple. All you do is you take your net pay, but remember to add your paycheck contributions back in. So if you're putting two grand a month into a 401k and an HSA, make sure you add that into your post-tax income that becomes your upper bound. And then 4% of your invested assets is your lower bound. So that part of the equation is inspired by the 4% guideline and what's in the middle of those two numbers becomes your target spending. So the 4% of invested assets serves as a bit of an anchor. It's going to tell you what your investments could currently support in perpetuity if your income went away tomorrow.

So for example, let's say you earn $90,000 after taxes and with your 401(k) contributions added back in, and you have $200,000 invested already. So you'd find 4% of $200,000, which is $8,000, that's your lower bound, and then you'd figure out what's halfway between $8,000 and your post-tax income of $90k, which works out to about $49,000. So in this framework, spending $49,000 per year or $4,083 per month is the spending that marries your existing progress with your current income.

Maybe you're someone who's just starting out and you have no invested assets yet, but you have a high salary that works out to $90,000 after taxes and paycheck contributions are added back in. It would suggest in this framework, $45K or about $4,000 less per year than the person who's already begun making progress. And because these things are proportional, even high net worths and high incomes still somewhat reasonable spending figures.

Someone who has a million dollars in invested assets and earns $250,000 would still be told to spend no more than $145,000 per year if they were following this formula because the proportionality of financial progress means you would need roughly $3.7 million invested to support that scaled up spending if the income went away, which means a net worth of a million dollars is amazing, but it's still pretty far from the goal.

Now, for some, this will be way too short of a leash, right? There's a reason I said it works really well if you have a new high income and you're really not sure how to engage with it. Because if you have large student loan payments, maybe you have multiple kids in daycare right now, God bless, I am rooting for you. Maybe you live in a high cost of living area, maybe you're not really concerned with reaching financial independence really quickly.

All of these things might mean that this is going to spit out a number that is unreasonable for you. It is certainly a very conservative, very financial independence forward calculation. It is still a far cry from a YOLO approach to money, but if the forums that I read were any indication, there were still people discussing anonymously amongst themselves the way that this formula instructed them to spend what they felt was way too much money. And I found that interesting, like all things considered because the table that I quickly threw together in Excel with incomes ranging from $50k to $500k and net worths ranging from $50k to $1m recommended at the very most, spending $195k per year. Now, don't get me wrong, that is a shit ton of money.

But the fact that in order to receive that result, you'd have to be pulling down half a mill per year and have a million bucks in the bank, indicates to me that if you wanted to loosen up and get creative, you probably could. So I was like, I wonder how much money these people have that they're getting results that they think is too much to spend. Anyway, I digress.

And look, I can hear the voice of my older and wiser friends in my head right now, and they're telling me, Katie, a really amazing life doesn't cost very much money. Money can't buy happiness, et cetera, et cetera, et cetera. Cue the JL Collins story about his buddy who was worth a bazillion dollars and still lived in a two bed, one bath home. But it occurs to me that the voices I hear in my head all belong to those in the baby boomer generation or older.

My friends who are people that at this point in their lives probably already own their homes. Some of them own them outright. They're out of their child rearing years. They may not even have kids that live with them anymore. They are more or less set in their ways and the expensive phase of their life is behind them.

This is the millionaire next door generation, right? Those for whom avoiding conspicuous consumption alone allowed them to become millionaires. The average American baby boomer is worth $1.2 million. And while I'm not saying that Gen X millennials and Gen Z won't turn out the same way when they are boomer aged, I do think it's an easier posture to maintain once the most expensive and potentially most stress inducing parts of your life are already in the rear view mirror.

I can't really say I've encountered many millennials who share this sentiment, particularly not if they're trying to figure out how to raise kids and buy a home in the next couple of years, or if they've already done so, how to keep the lights on. It seems to me that most young people don't really need to be convinced that having a little more money to spend would materially improve their experience of their lives. But sometimes it feels like we are afraid to acknowledge that because we're fearful of suggesting that there's no such thing as diminishing returns. And we know there are absolutely diminishing returns.

But as far as lifestyle creep goes, I think the idea of suggesting that spending more money won't make you happier is just kind of a farce that anyone who has ever gotten more money knows and understands stands.

Where do we go from here? What's the future ideal state? To be honest, I fantasize about a version of myself that can make decisions about what's a reasonable amount of money to spend without needing to consult a literal chart in Excel or jump through emotional justification hoops about why it's a good decision and why I need it. Unfortunately, I so earnestly embraced the idea that spending more as you earn more means you are undisciplined and that it is dangerous, that it is a deconstruction process that's still underway. And for those of you who would rightly point out that I have spent more as I've earned more, yes, but I have felt guilty and uneasy about it the entire time as evidenced by all these blog posts where I'm trying to justify it, which somewhat defeats the purpose. The goal, I think, is a healthy and well-adjusted relationship with money, which usually means one that recognizes its importance in creating a full life, but knows the how of that is going to look different for everyone.

Because I noticed that my money judgment did not discriminate when I began my personal finance journey. I applied the same harsh lens to everyone around me that I did to myself. That meant that the feelings I secretly harbored about acquaintances who drove nice cars became a karmic Reverse Uno card hen I found myself wanting a nice car. It meant that I led first and foremost with suspicion, not curiosity. It meant that I accepted platitudes about money. Oh, money doesn't make you happy. Oh, you can live a beautiful life on very little. I accepted those things at face value, right? I didn't really interrogate whether or not they were actually true for me. And while I'm sure even this reflection will end up in the cringe heap with the rest of it someday, that's more or less the point of being a writer, right? So you can publish your growth in real time?

Anyway, that is all for this week, and I will see you in two weeks, same time, same place on The Money with Katie Show.

Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our Chief Content Officer, and additional fact checking comes from Kate Brandt.