Do You Make More than You Did 5 Years Ago?

in Spending

The simple answer is (if you are in your 20’s or 30’s) is, of course. I make more than I did 5 years ago, however, do you really? Has your lifestyle changed to consume that increase in income ?

Lamborghini Gallardo Sports lifetyle choice
You Deserve this don’t you?

Lifestyle creep is a very dangerous problem for young folks, who start making good money, and decide that their lifestyle needs to expand so they can “enjoy their new life”. Speaking as someone who fell into that trap, I can assure you that it is much harder to simply keep living like you did when you were “poor” (or a student) than to give into your Impulses and “spend, Spend, SPEND!!!”. I borrow this idea from the concept of Feature Creep, where your customers (or worse your management) want to add more and more things to a project, “because they are small”, however all these small add-ons become a big expense (in terms of time, money and resources).

The question really should be, “Do you net as much as you did 5 years ago?”, and that question is a lot harder to answer.

While your income may have increased a whopping 25% (gross) over the past 8 years (or so), the problems you run into are the following:

  • If you crossed the magic line and jumped into the 2nd Canadian Federal Tax Bracket, your new income is now no longer being taxed at 15% and now it is being taxed at 22%, so you aren’t actually having a linear growth on your income. If you live in Ontario your provincial tax rate jumps from 5% to 9% too, isn’t that fun?
  • That crappy apartment that you shared with your annoying roommate that cost you only $400 a month is now gone and you have a great apartment of your own that you are now paying $1500 a month.
  • You have worked hard, so instead of camping in Algonquin park with your buddies and having your major cost being 3 cases of beer, you decided that you deserve a cool vacation to one of those all you can drink (and eat I hear) in Cuba, and it only cost $900 with the air fare.
  • That death trap of a car that you drove into the ground at school, that you did most of your own service on is gone, and you are now leasing a nifty new Studebaker SuckTheMoneyOutOfYou, but your girlfriend really likes it (and it only costs $600 a month on the lease, then more for insurance, and gas).

Are You Getting Ahead ?

You really think you are 25% ahead? If you look closely you might actually be 8% behind (that is a guess on my part it might be more, or less).

Lifestyle Creep is a real danger for young folks, almost as dangerous as belly droop for old guys like me.

Image courtesy of  foto76 / FreeDigitalPhotos.net

{ 8 comments }

  • Derek @ MoneyAhoy.com August 27, 2013, 9:36 AM

    As our kids are getting older, daycare for them is less and less expensive. Couple that with normal raises/promotions and an effort to increase our savings rate and we are doing better! I just hope we can keep the discipline long enough to give us the option to retire early!

    Reply
  • Maggie@SquarePennies August 20, 2013, 4:49 PM

    After putting our 4 kids through college, we had a nice uptick in available income. Very nice to have a few extras after all those years. We are retired, don’t touch our retirement savings, & keep adding to our investments. I think learning to economize for so many years has helped us save and to live below our means. We are learning to force ourselves to enjoy a few trips!

    Reply
  • My Own Advisor August 14, 2013, 9:49 PM

    Saving more now than I used to, but I also make more.

    I suspect we’re ahead by a bit but not by leaps and bounds. If I lived a more frugal life, I could be retired in 5-10 years. But then what?

    Reply
  • Money Beagle August 14, 2013, 12:50 PM

    Five years ago, we didn’t have kids. Now we have two. So, right there gives you the answer 🙂

    Reply
  • krantcents August 13, 2013, 8:58 PM

    Although I marginally make more money and my expenses have increased thanks to inflation, I still max out savings.

    Reply
  • Elizabeth August 13, 2013, 7:37 PM

    I think some lifestyle creep is inevitable as we “grow up” — for example, moving from cheap student housing to a decent apartment.

    My benchmark isn’t how much more I’m earning — it’s how much more I’m saving and how much my net worth is growing.

    Reply
    • Roadmap2Retire August 13, 2013, 8:26 PM

      Elizabeth hit the nail on the head. I measure my “growing up” (among other things) as a metric of savings percentage

      Reply
  • Bet Crooks August 13, 2013, 5:25 PM

    We have experienced more of a Lifestyle Plunge due to the costs of raising our kids in the manner to which they hope to become accustomed. Even with moderation and telling them “no” a lot, there are so many things they grow out of and need that they cost far more per year than we older models do. We don’t mind but it’s a big difference to the budget.

    Reply

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