How Lifestyle Creep Could Affect Your Financial Freedom
After years of hard-earned success and planning, it's time to start reframing what your retirement will look like and enjoying the lifestyle you've built. But what if your lifestyle is at odds with your retirement goals?
Lifestyle creep is a real risk. Consider how lifestyle creep could have crept into your life, how your retirement might be impacted, and how to maintain the maximum level of financial freedom.
Lifestyle Creep, Explained
Lifestyle creep occurs in small doses. As your income increases, your spending increases. At first, it might include small behaviors: bringing your lunch to work each day can quickly shift to buying lunch once a week.
Before you know it, you've built a life that's vastly more expensive than what you truly need to live a fulfilled life. A regular gym membership has turned into a premier luxury gym. And you're always sporting the latest smartphone. None of these financial choices are harmful by themselves, but they may become a powerful drain on your finances.
For example, a seemingly harmless fancy coffee habit can cost you $50 per month. While that may not seem too costly at first, keeping that fancy coffee habit into your retirement years can add up: $50 per month on coffee is $600 per year. If you plan on 25 years in retirement, you'll need an extra $15,000 in the bank for your coffee alone. Take an adventure toward minimalism in order to maximize your retirement with the following steps.
Step 1: Identify Your Ideal Retirement
For years now, you've had a clear understanding of what your retirement savings would translate to. Now, it's time to lay out what a meaningful, rewarding retirement truly looks like. From travel and volunteering to more time spent with family and friends, odds are that your retirement goals will focus more on experiences rather than things.
By being honest with yourself, your partner, and your loved ones, you can start to hone your financial strategy so that your finances fuel those goals.
Step 2: Identify Areas to Pare Down and Trade-off
Keep in mind that financial freedom isn't just about reducing expenses. It's about reducing the clutter in your finances so that you know exactly where your money goes each month. It also gives you a better picture of how the money you spend helps you achieve your retirement goals.
Here are a few ideas to help you identify areas of your finances that no longer bring your retirement plans joy:
- Subscriptions and Auto-Pilot Expenses: Perform a review of your credit card and bank statements, highlighting every monthly or annual recurring charge. It's a simple way to cancel magazines, streaming channels, and other subscription-based purchases that linger in the background of your finances. You'll find your mailbox and email inboxes delightfully decluttered in the process.
- Lifestyle Upgrades: How fancy of a gym do you need? Does your twice-a-week sushi delivery habit make your eyes bulge when you run the numbers? Look at areas of your finances where you've gradually spent more for items or services you used to buy on a budget. Try downgrading some of these so that you aren't losing the quality of life that's important to you in your retirement years.
- Luxury Extras: Is there a third car you rarely use? What about a vacation home or timeshare you find yourself giving away to friends for free but rarely use yourself? You may be able to declutter your finances by selling luxury extras you rarely get the chance to enjoy. You might also be prompted to find less costly trade-offs, like selling a vacation home to pay off your primary mortgage.
When you take the time to see where your money is going every month, you can also start a conversation about trade-offs. If you love your swanky gym membership because it gets you to the gym and keeps you active, perhaps you can switch your sushi delivery habit to twice a month instead of twice a week. The extra you save could go toward one of your "best life" retirement goals and streamline your finances all at once.
Step 3: Put Your Plan into Action
Once you've identified your ideal retirement lifestyle and all of the extras that don't add joy and contribute to those goals, you're ready for a new stage of financial freedom: celebrating your minimalism.
Set a monthly budget and stick to it. You know what you want and what you need. Knowing what you spend, where you spend it, and why is an essential part of living your best life in retirement. By keeping track of your expenses regularly, you can put an end to overspending before it hurts your retirement goals.
Speaking of retirement goals, don't be afraid to reassess how you define "luxury." It's possible to live a life rich in experiences yet thrifty with spending. Without a myriad of things (and their associated expenses) weighing your retirement years down, you might find that you're living the most luxurious life you've ever lived with a financially minimalist lifestyle.
Now, what steps will you take today to declutter your finances and reclaim your financial freedom from years of lifestyle creep? Your retirement is waiting.