Episode 108: Avoiding Lifestyle Creep: A Cautionary Tale, Part 3

Do you increase your spending to keep up with increases in your income? This is “lifestyle creep.” Dawn continues her story about how lifestyle creep ramped up in her life.

 

Show transcript:

Welcome to the SimpleMoney Podcast, where we make personal finance less intimidating. I’m Dawn Starks, a financial planner and lover of the simple life. I’m here to talk about money and simplicity. Let’s dive in. This is Episode 108: Avoiding Lifestyle Creep: A Cautionary Tale, Part 3. Back in the spring, I started writing this series of blog posts about lifestyle creep, and I’ve already recorded two podcasts that represent the first two blog posts that I wrote about this topic. And this one is Part 3. So do you remember what lifestyle creep is?

If you’ve listened to the other episodes you might remember. It’s the phenomenon that occurs when you’re spending creeps up to keep up with your income. So, for example, if you get a raise at work and so you’re suddenly bringing in more money, instead of saving that money or doing something productive with it, you just start spending more. And it’s a very natural occurrence. People do it because they think, “Oh well, I deserve it. I’ve been working so hard, and now I’m making a little bit more money,

and I deserve to spend a little bit more on myself or on my family.” And so it’s just normal and natural for people to do that. And so, of course, the best thing to do is to know that when a raise comes, or when some sort of windfall comes – you get a bonus, you get an inheritance or something – that you already have a plan for that. Maybe you’re going to use it to spend down, or to pay down on some debt. Or maybe you’re going to use it to put towards your savings for some savings goal that you have, or some combination of those things.

And I do always encourage people to splurge a little bit. So you know, if you get a raise at work, maybe go out for a nice dinner, but then commit the remainder of the extra money that you’re going to have in your paycheck now, commit that to something that’s more productive, like paying down debt or saving for something. So lifestyle creep is natural and it’s normal and it happens all the time. But it is preventable, so you can do something about it by planning ahead. And so,

in the first round of this saga of my life, the first one, the first part was about my early married life and how lifestyle creep wasn’t really a big player in our life then because we had no money. So we didn’t have any money, really, to creep our lifestyle up. And so it was very, we just had very little money to work with. And so it was really more about how we got our lives going, our married life going with such a small amount of money.

And also, I think my aversion to debt also had a role in us not spending a lot, or creeping up our lifestyle, and also my interest in simple living also kind of kept that lifestyle creep under control. And then when I moved into Part 2 of the story, I talked about the fact that we moved to a bigger house and we really did that before we were financially ready to do so. We should not have probably done that, in retrospect. It all worked out fine, but honestly, it was really bad timing because

we did that, we made that move in 2001, and I was feeling confident that the recession of 2000 – 2001 was coming to an end, and actually it didn’t. It lasted all the way, in the market downturn, it lasted all the way through 2002. So it was just really bad timing for a lot of reasons there. But we did make some good financial decisions at that time. So we continued to make paying down our debts a priority in our financial life. And we were saving for retirement and that sort of thing.

And then, of course, there were the couple of questionable financial decisions that I talked about. Like, for instance, buying a boat. Now, we didn’t go crazy and buy you know, a super fancy boat. But nevertheless, that was probably not an ideal purchase for us at that time. And so in this installment, this Part 3, this is going to talk about our lives taking a different turn. And so this starts in about 2007 when we decided to have a baby, despite my advanced, what was considered advanced maternal age at that time.

So at that point, we had been married for 10 years and it hadn’t crossed our mind to have a child. Because really, I had, you know, my business was my child, and that’s what I focused all my attention on. And then suddenly, we decided that that was something that we wanted to do. So when those first 10 years of our marriage were going on, you know, we were parents, of course, we had four-legged children. We had our dogs, and at our peak,

we actually had nine dogs and two ferrets. So we had 11 pets in this little, 1400 square foot house that we lived in. And so that, of course that’s crazy, right? That’s just insane. And with all those pets, we hardly ever traveled, so that was a good thing for our budget. But of course it was made up for in spades by the money we spent on all of those pets.

So, really, where we spent our money was on our pets and toys, like the boat, like I mentioned, and then on landscaping.

So because this new house that we bought, the 1400 square foot house, the middle house, the second house of ours,

it really needed a lot of work on the landscaping in order to bring it up in terms of its value and just,

you know, the aesthetic of the place. And so, by the time our daughter Rowan was born in 2008, our pet population was down to just six aging dogs.

So we had a lot of dogs that were kind of clustered together in age, and we were down to six by the time she was born.

So while I was preparing to have Rowan, I read dozens and dozens of books. And so,

you know, my pregnancy was considered risky because I was older. I gave birth when I was 39 years old,

and for the most part, things went very smoothly during my pregnancy. And we had to rework our life-plan,

of course, because we had to figure out how are we going to fit another person, a small person,

but still another person in this little house. It was a very crowded house because of all the pets,

and it was very cluttered. So we had a lot of clutter in that house. And largely that was driven,

and now I can see it, looking back, it was driven by the fact that we had very,

very, very little closet space. And so the stuff we owned didn’t really have a place to be stashed in a closet.

So that meant it stacked up on surfaces, and it stacked up in corners, it stacked up on the floor.

It just was very cluttered. So when we knew this baby was coming along, Greg gave up his home office.

We had it, that was a three bedroom house, and so one office was, one room was mine,

one room was his for our offices. And then, of course, our bedroom was the third. And so I moved my office into what was his office.

And we prepared what was my former home office to be the baby nursery. And of course, we spent a hunk of money to furnish that room because we wanted to make sure it was nice for our new child.

You know, first time parents tend to overspend, and in fact, actually, the discussion about the baby’s room is probably one of my top 10 moments that I’m not proud of,

because at that point we had virtually every piece of furniture in our house was hand-me-down furniture, or secondhand furniture,

we were always frugal about things. But I decided that I wanted to have new furniture for that baby’s room.

And so, you know, it was the obvious thing for us to do would have been to just go and look at the secondhand stores and find some gently used furniture that we could have used for her room.

But instead we decided, because I forced the issue, that we were going to buy brand new furniture. And it was fairly expensive,

I mean, for us it was very expensive, and it all matched and it looked… It was gorgeous,

it was beautiful. And I just would not budge. I pretty much threw a temper tantrum to get my way on that decision.

Because the fact of matter was, we had the money. We were being really good about paying down on our debts and keeping our money for savings and setting aside money and budgeting for the coming child.

So we were doing all the right things, so I knew we had the money. We had the flexibility. But

we really didn’t need to be doing that. But I would not budge and I just said I’m not going to settle for less.

I’m going to have this furniture. And then, of course, there’s the baby gear. Everybody,

you know, I think as a first-time parent, you just don’t know what you need and a lot of people will give you tips,

and they say, “Well, this really worked for me. You know, I really like a swing for the baby,”

“I really liked a bouncer chair,” “I really liked a sling that you wear on your body.”

Whatever. So, you know, we get different feedback from different people and, of course,

researching online, we figured out the lists of all the things we wanted to have, and then we started accumulating those things.

And so, like I said, we made a budget, and we were – we didn’t go crazy in the sense that we didn’t just buy sight unseen,

Greg was the researcher, he did the research on the gear. I’m the one that worked on the budget and made sure we had the money ready to spend –

but they were just things that we thought we had to have. You know, this is what a good parent has and what a good parent buys for their child.

And of course, that’s not true, we didn’t need half that stuff that we got for her.

So that’s a little bit embarrassing, but it was one of those live-and-learn moments I think. So,

a few months before Rowan arrived on the scene – so she was born in July, so this was about May,

it was the spring, and I was very pregnant at that time – Greg decided that the car that we had wasn’t safe. Because it did not have,

it was an older car, and it did not have side airbags. So he decided that we needed to upgrade the car to have a safer choice to cart around our child.

I loved that car that I was driving, and I did not want to change vehicles. And so we argued about it and we negotiated about it.

And then finally, when we were at the dealership, I had to excuse myself during the paperwork to go to the bathroom and cry because I was getting rid of this car that I loved.

And so then I drove off in, it was a Subaru Outback that I had. And so I drove out of the dealership in my new Subaru Forester.

And so, as an aside, I’ll tell you that I was super mad at my husband for what I perceived in my – granted,

I was hormonal. I was pregnant, so I was very hormonal and I was very emotional about this whole thing –

I was really mad that he, what to my way of thinking, forced me to sell this car.

But by the time I got to work in the new car, I called him and I said,

“I love this new car!” It was just great. So, you know, as I said, I was just a hormonal pregnant woman,

and so I was not nice during the whole negotiation, but we got past that. So there was the furniture,

there was the baby gear, a new car, along with a new car payment. And, of course,

the hospital bills. And all of this came at a time when our income decreased due to the fact that we had made a family decision that Greg would stay home and stop doing his,

he had a business of his own, and so he was going to stay home and I was going to go back to work after my maternity leave.

So our lifestyle creep at this point, I would say, was off-the-charts out-of-control. But it didn’t matter to us because we had our new daughter.

Everything was well, everybody was healthy, and I budgeted for it. So we didn’t go into debt, other than the car loan for the new car,

I didn’t go into any debt for, well we didn’t go into any debt for all the stuff that we bought.

So we were able to get it worked out in our budget. So during that time, we did do some things right.

So we were spending all that money on baby gear and stuff for the baby. But there were good points because before we had bought that house,

that house number two, we had paid off all of our debts except our mortgage, and we racked up a little bit of new debt during the years we were in house number two because we had two additional mortgages.

If you remember from my last installment, we bought that house, and it was more than we could afford.

And so we had a regular mortgage and then we had a second mortgage that the seller carried for us. So we had two additional mortgages because we had the mortgage on our first house,

which we had maintained as a rental during that period of time. But our credit cards were all paid off.

We paid them off every month, we never carried a balance again on those. And when we decided to have Rowan,

I made that budget. And as I said, I started saving money really, really

aggressively. And so I was ready for it. So I knew what we were going to spend, or at least I knew what I expected us to spend,

and I saved the money for it. And when the hospital bills came in, we were able to pay them quickly.

The other thing that was good during that time was that my business was growing really nicely, and so was my income.

So we had bought a building for my business, and we were regularly investing for our retirement. And when Rowan arrived in 2008 that was just in time for the bottom to drop out of the market.

So we were rolling along really well, and then Rowan was born, then the market tanked as the Great Recession kicked in, and that really put a damper on my income for a few years.

So, and of course Greg wasn’t working. But due to our planning and saving, we made it through that time.

But we really had to tighten our belts during that period of time. And so, and since we weren’t using it, because we were super busy because I was working a lot and we had this new child,

we sold the boat, so that also provided a little bit of income for things we needed. So all in all,

at this point, we were making some good decisions about our money, and we weren’t fully succumbing to lifestyle creep.

There was that little episode of planning for the baby where we kind of went out of control. But we reined it back in because, partly because we had to,

because the economy just completely tanked and so that took my income down, but we did curb those tendencies,

and so we didn’t continue to let our lifestyle creep after the recession was over and my income picked back up again.

We settled into what I would consider to be good patterns of our work and home life and our spending, and everything was all well and good.

But then, in 2010 when, so Rowan was two, we had started talking about finding a larger home with more property.

We had a fairly small lot and we wanted to have more property. We had visions about how we wanted to live our life.

We wanted more buffer between us and our neighbors. We loved our little house, but we were really close to neighbors that we didn’t like that much.

We wanted to have room to roam, we wanted to have more garden space. We had a lot of things that we really had,

you know, our dreams, in terms of what we wanted to have. But we were busy with work and with a toddler,

and so we weren’t actively looking for a new property. We would just kind of poke around from time to time.

But in the winter of 2011 that was a big change for us. Because we had a really killer winter,

lots of snow, we had this one big storm – we live on a mountain and house number two was also just a mile further down the mountain,

actually, half a mile further down the mountain – and so the storm stranded us at our house.

And our neighbors that were further up the mountain were stranded worse than we were, they couldn’t even get their car up the road. So the roads weren’t passable,

and Greg had an ATV, and so he was, from our driveway, was giving people rides up to their house, where they had to abandon their car near our driveway.

So while he was doing one of those trips of the mountain on his ATV, one of the neighbors let him know that there was a large parcel of land above us,

you know, up the road from us that was going to go on the market. And that was a really kind of long story,

and it was very exciting, but to make it very short, the property was being turned over due to a bankruptcy proceeding.

And so we could buy those 46 acres for a deep discount. Yes, 46 acres, huge! But it was a screaming deal for property at that time.

And so we scrambled to put together a down payment and arrange for the financing because this was the dream we were looking for.

We didn’t even have to leave the road in the area we loved. It was just a half-mile further up our same road.

This was not a deal we felt like we could pass up. So we relied on the faith that we had that we would be able to make the cash-flow work.

You know, I knew that my income would continue to grow over time. And I knew that I was careful with budgeting, and that we would be careful about it.

But, you know, to say that this was a strain on our finances, that’s an understatement!

It was a huge strain to carry a whole mortgage on our house number two and then to buy this property.

So we had been, as I said, diligently paying off debts and increasing our savings. But this was a big jump up in the amount of debt that we had.

In fact, after our house was built on the new property, our debt load was more than quadruple what it was prior to us purchasing the property.

So it was a huge, four times, four times the debt of what we had before we bought this property and built the house we live in now.

So I will tell you that building a house almost killed us, financially. We almost killed each other. They say that that happens,

and actually, we had lots of, it was very peaceful for the vast majority of the time

we were working on building this house, and was only at the very end that things got kind of crazy,

and we started to get at each other’s throats about it. But we spent three years cleaning

up the property – actually Greg did all this, I didn’t do any of this – he spent that time cleaning up the property,

and then we worked together to design our dream home with an architect. And then we had, it was an extra-long process of building our house.

And it was so much money, so much money. Of course it was over budget. It was a lot of money anyway,

and then it was over budget. So it was even way more money than we anticipated spending. So this would be the pinnacle of our lifestyle creep saga.

We have not, since then, done anything like that. So we’ve been really, truly, trying to unwind that lifestyle creep, because that shot us up so much, in terms of our expenses and everything we had to pay for.

It has been a process for us to just sort of bring, you know, rein things in and get things paid off between then and now.

So, as I said, the house cost way more than we originally anticipated. But I just put my head down at work and worked on growing the business.

And Greg did all that he could with the home design and the construction process to try to save us as much as we could during the process.

And then we just, you know, we just busted our tails to stay afloat and keep, you know,

keep our costs down. We kept cutting costs where we could. We ended up selling house number two,

the second one we that we had, the 1400 square foot house. We essentially traded for the house we live in now,

which is 2400 square feet. So not terribly large, but certainly larger than the one we had. But Greg,

after our current house was built, he renovated the old house. And then we put it on the market and sold it and did well on that,

thankfully. But we were very, very much house- and land-poor. So we managed, our budget was fine,

we got by, and we did not rack up credit card debt. But we were

skating by on that. So that is where I would say our lifestyle creep really came to be.

And in the earlier installments of this story, I feel like our lifestyle creep was very measured. And yes,

as our income went up over time, yes we certainly spent more. We bought a, you know,

went from our first house to a larger house and more expensive house, obviously. And then when our

income went up some more and we had an opportunity, we bought house number three. Which was, of course,

much more expensive, and much more to what we really wanted to have. So that has really been

the peak of our lifestyle creep. And I think that, you know, we made those decisions during the building of the house, knowing,

I guess maybe in our gut, that my income would go up over time. Because my business was doing very well,

it was growing, I continued to add employees and grow the business more and more, and it was all working out very well.

So I would say that it was a calculated risk. So I talk about risk a lot on the blog and on the podcast, and how sometimes you have to make calculated risks.

You don’t want to just take risks just for the sake of taking risks, because, I mean, sometimes people think that’s really fun and exciting.

I don’t, I think that especially when it comes to your money, you need to be very thoughtful and careful about taking a risk.

And so if you have a job that doesn’t have a lot of upward potential in terms of what your earnings could be,

then it’s much riskier for you to take on a larger house payment or some other major debt with the idea that,

“Oh, I’ll make more money as time goes by.” You have to be really careful about that. So, the type of career that I have,

it was possible and conceivable that my income would continue to grow and I would be able to afford things, we would be able to afford this house that we were building.

So if you’ve listened to this whole saga, and if you’ve listened to the other parts or read the blog post,

I appreciate your interest and persistence and following my story. In Part 4 of the saga, which is not, it’s not even written yet,

I will bring us to present day, and you’ll see our lifestyle creep go off the charts. I know I just said it was our pinnacle,

but it wasn’t really our pinnacle because we did have one more kind of crazy episode, and then it receded.

So I will talk about that in Part 4. So if you had a great story, or an interesting story, or a horrifying story about lifestyle creep,

and you want to share it with me, that would be lovely. I would love to hear your stories. So you can join the free Facebook group

we have, the SimpleMoney Community on Facebook, and share your thoughts there. Or you can email me at dawn@simplemoneypro.com and share your story there. Again,

I would love to hear from you and hear your stories about lifestyle creep. Thanks for listening.

If you enjoy the SimpleMoney Podcast, be sure to subscribe on your favorite podcast player. We’d love it if you would leave us feedback and a review.

And don’t forget to check out my blog at simplemoneypro.com. There you’ll find dozens of posts about financial issues that matter to you, as well as thought-provoking pieces about simplifying your life.

Bye for now.

 

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