How To

Lifestyle Creep: Are You Living Beyond Your Means?

Photo: bigpenguin2000

For the first seven years of our marriage, my wife and I lived in an apartment without an automatic dishwasher. It wasn’t something we ever thought about: we’re renters, so we couldn’t have put in a dishwasher if we’d wanted to, and I never considered washing dishes a particularly onerous chore.

Then we moved to an apartment with a dishwasher. Wow, these things are great! You put dirty dishes in, and 90 minutes later…okay, you probably know this. Anyway, when we looked for our next apartment, I didn’t even want to consider a place without a dishwasher. They can have my dishwasher when they pry it from my cold dishpan hands. Never mind that I was no less happy in my dishwasher-free years.

I was a victim of lifestyle creep, which is a fancy name for keeping up with the Joneses. Lifestyle creep is the enemy of savings. It turns luxuries into necessities. And it’s a fact of life in a wealthy culture. “We get tons of messages all the time that tell us that what we have is not enough,” says Ken Robinson, a certified financial planner in Cleveland and author of Don’t Make a Budget.

No news there, I trust. So let’s go back to my dishwasher for a moment. A dishwasher is actually useful, right? Daniel Gilbert’s cigars, not so much. Gilbert is a Harvard psychology professor and the author of Stumbling on Happiness, in which he observes:

I too could have been happy without cigars if only I had not experienced their pharmacological mysteries in my wayward youth. But I did, and because I did I now know what I am missing when I don’t, hence that glorious moment during my spring vacation when I am reclining in a lawn chair on the golden sands of Kauai, sipping Talisker and watching the sun slip slowly into a taffeta sea, is just not quite perfect if I don’t also have something stinky and Cuban in my hand.

Ew. But my dishwasher and I know how he feels.

Who cares?

So, what’s the big deal? I want my standard of living to improve over time, and I assume you feel the same way.

Here’s the big deal:

* Your lifestyle can easily creep beyond your means to pay for it. Even if you’re not spending more money than you have, it’s all too easy to spend money today that should be set aside for retirement. (In fact, you can see just how much today’s discretionary expenses could add up to if put into a retirement fund with the help of Mint’s calculator.)

* The more expensive your lifestyle, the farther you have to fall in a crisis. If you live modestly and save a lot (and carry good insurance), you’ll be equipped to absorb a big financial hit. Some people live close to the edge by necessity; why do it by choice?

Every year after we do our taxes, my wife and I sit down and talk about our financial status and goals for the year. This is usually more fun than it sounds. This year we came to an unusual conclusion. Do we want to save more, donate more, and make more money? Sure. But what’s the single most important thing we can do to stay on the right track, financially?

Continue living in our cheap apartment for as long as possible.

Automatic Savings — Manual Spending

So, what’s the secret to keeping lifestyle creep in check, when the world is constantly dangling shiny things and cigars in your face?

It’s no secret. It’s the same advice personal finance columnists have been doling out since we were writing on cave walls.

“Make your savings automatic and make your spending very manual,” says Robinson. It’s “pay yourself first” for the modern age: set up an automatic paycheck deduction or electronic transfer to a savings account and put that savings as far out of mind as possible. Then, when you receive a raise or a windfall, it all goes into savings, because you’re already meeting your needs without it. That’s the same “automatic” as in the title of David Bach’s bestseller, The Automatic Millionaire.

The manual spending side means using cash or debit cards rather than credit cards. It just feels different.

People bristle at this advice, because it amounts to fooling yourself–which means admitting you are capable of being fooled. Or because it sounds miserly. Or because you’ve heard it a dozen times before. (And if you’ve heard this advice a dozen times before and already follow it, pat yourself on the back, because most people don’t.)

But it works. I am not a congenitally frugal person. Like nearly everyone, I’m subject to what Robinson calls (perhaps immodestly) Robinson’s Law: Spending expands to consume perceived available cash.

More than ever before, we have the tools to turn Robinson’s Law in our favor by making our savings automatic, thereby reducing our perceived available cash. Unfortunately, more than ever before, we have the tools to expand our perceived available cash: credit cards and home equity lines of credit.

Or do we?

A new baseline

It’s probably too soon to start talking about upsides to the recession, and it would be a mistake to declare that American spending habits have changed forever–remember how 9/11 was going to mark the death of irony?

But if your personal lines of credit have been slashed, try and see the silver lining: you’re being nudged over to the upside of Robinson’s Law. You can establish a new baseline against which to rein in your lifestyle creep.

By the way, Robinson — a successful financial planner and public speaker — doesn’t own a dishwasher.

Matthew Amster-Burton, author of the book Hungry Monkey, writes on food and finance from his home in Seattle.