Even the most comprehensive retirement planning strategy can get sidetracked if you fall victim to a phenomenon known as lifestyle creep.
Lifestyle creep, sometimes called lifestyle inflation, is the term used to describe the phenomenon wherein your expenses grow at the same rate as your income. It happens to everyone but, left unchecked, it can prevent you from achieving some or all of your personal financial goals – including your retirement planning.
How Does Lifestyle Inflation Happen?
This phenomenon occurs gradually over time and, often, strikes without you even realizing it.
Let’s say you get a raise at work, leaving you with more discretionary income. Maybe you’ve been driving an older car or living in a house that your family has outgrown. You work hard, so why not spend some of your newfound wealth on a new car or a bigger house?
How Lifestyle Creep Affects Wealth Management
Although buying a bigger home may indeed be wise investments – and buying a new car might be a necessary purchase – you might forget to consider the portion of your increased income that should be invested for retirement. As a result, your rate of savings becomes insufficient to continue your current lifestyle in retirement.
Your financial plan should not only help you prepare for retirement, but it should also help you through times of financial hardship, such as losing your job or encountering a large, unexpected expense. This means that you need to adjust your financial plan any time you experience any major life change or adjustment to your personal financial position.
Once you’ve addressed this issue, you can reevaluate how much you really have to spend on that new car or house.
How a Retirement Planning Expert Can Help
One of the most effective strategies for avoiding the potentially detrimental effects of lifestyle inflation is using an objective-based approach to retirement and financial planning. When you establish concrete goals for what you want to accomplish with your money, you have a better chance of staying on track than you would by putting yourself on a budget, for example.
Financial advisors help people save for retirement and other objectives by establishing short-, medium- and long-term goals for savings and portfolio growth. As part of a comprehensive financial plan, you will have milestones to track your progress. You will also revisit your retirement plan periodically, so you can modify your strategies as necessary when aspects of your life and personal finances change.
As long as you’re meeting your goals, you can always splurge or treat yourself with whatever funds you have left over.
In Atlanta and throughout Georgia, Resource Planning Group helps clients with retirement planning, estate planning, wealth management and more. No matter what phase of your life you’re in currently, we will tailor a custom financial strategy to help you get where you want to go. Contact us today to schedule your personal consultation.
DISCLAIMER: It is important to note that this information is not meant to provide investment, tax, legal or accounting advice. This material is for informational purposes only, and is not intended to provide, and should not be relied on for, investment, tax, legal or accounting advice. You should always consult your own financial planning, tax, legal and accounting advisors before engaging in any transaction.
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