“Living an affluent lifestyle often creates a lifestyle trap – the lifestyle uses up the income and leaves little to nothing for wealth creation.”– Dave Fisher, Destination Wealth
After many years of study and hard work, you have finally reached a point in your career where you are earning good money. You are in a financial happy place. Then you purchase a bigger house, a nicer car, send your kids to a better school, and, before you know it, the life that you’ve built for your family is solely dependent on your monthly income. You need every cent to maintain the lifestyle that you have adopted, and there is little wiggle room to invest in financial growth – in wealth creation. This is the lifestyle trap (also called ‘lifestyle creep’ or ‘lifestyle inflation’).
The ugly truth about lavish lifestyles
Some people may find themselves in an affluent situation, where they are slowly spending more as their income grows. Previous luxuries are now considered essentials and your average expenses are becoming more and more expensive. You may find yourself worrying less about your grocery budget and buying luxury food items on a whim. In addition, you might find yourself buying from more upmarket stores and brands, thereby spending more than you normally would. Your bigger income now allows it, or does it?
Suddenly, the extra money that you were making month-to-month has been devoured by your expenses. Yet again, you are living paycheck to paycheck. Now, the demands of your lifestyle are pressurizing you and your income – your lifestyle is overwhelming you.
As soon as any of these expenses increase, due to inflation for example, your money won’t be enough to cover it. Maya Fisher-French explains that this is where people take on more credit to maintain a lifestyle that they truthfully can’t afford. In extreme cases, some even feel pressured enough to commit fraud.
How to escape the lifestyle trap
It is unrealistic and unnecessary to constantly live in fear of not having enough. As such, it is expected that with a salary increase you will upgrade your lifestyle. It is also okay to reward yourself for your hard work and achievements. However, don’t allow yourself to be drawn into the lifestyle trap because you feel the need to ‘look’ wealthy. You may find yourself drowning in your own lifestyle with no control over your diminishing finances. On the other hand, you may just want to tread lightly before you reach that point. Whichever situation you are in, you can escape the lifestyle trap!
1. Don’t be a slave to instant gratification
We’ve all heard the saying “money can’t buy happiness”. Our urge to spend money to seek fulfilment is not the key that unlocks happiness. Finding joy from external factors will provide you with a temporary high that will inevitably wear off. Avoid seeking instant gratification and fulfilment in excessive spending. In an article on instant gratification and investing, Dave Fisher says, “resist the urge to seek an immediate reward and work towards that long-term goal, which has a much larger payoff to look forward to”.
2. Don’t spend without budgeting
Before inadvertently digging a financial hole that is extremely difficult to get out of, start acting strategically. Manage your newfound money wisely. Know how to budget and be disciplined about sticking to it. In his book, Destination Wealth, Dave explains that budgeting is an exercise in self-control. “Whatever reason you have for not following a budget, to divert money into investments, we can’t delay the right choices any longer. Proper budgeting requires a mindset shift – to the victory mindset”. Your budget is your foolproof guide to financial victory. If you follow it, you can rest assured that you will have enough and be able to create wealth.
3. Don’t deprioritize investing
Before delving into your salary to cover your lifestyle, think long-term. Envision your financial goals and create a plan to reach them. Dave explains that “money goals work hand-in-hand with an effective plan of action. Goals provide financially intelligent people with both short- and long-term objectives that keep them focused and motivated throughout their day.” Add a portion that you would like to invest monthly in your budget. Make sure to consider this as important as your essential monthly expenses. Dave advises that you should set aside at least 10 percent of your income for investing.
4. Don’t ignore your emergency fund
Your first step to investing is your emergency fund – your fund for unexpected expenses. Before you consider spending your income, your emergency fund should be taken care of. This is your financial safety net that will carry you through tough unprecedented times. Building your emergency fund will provide you with the sense of financial security that will alleviate the fear of being left with nothing when the need arises. Your emergency fund will allow you to spend money that you budgeted for with confidence, knowing that you are secure. As author and businessman Dave Ramsay says, “money doesn’t make you immune to the little speed bumps in life, but it can easily turn an emergency into an inconvenience”.
5. Don’t fall prey to consumerism
Most of us are guilty of the occasional (or less occasional) spending spree. Though we need to practice better self-control, stores make it rather difficult to behave differently. Everywhere you look enticing offers, exclusive deals and ‘one-day-only’ specials abound. Spending has become increasingly accessible with the ease of credit cards and online shopping being just a click away. Stores and outlets are out to make money, and they will make it as attractive as possible for you to give them your hard-earned cash.
We have to steer clear of excessive consumerism. Remember that your possessions don’t define you. Karen Banes explains that lifestyle purchases are often rooted in a sense of insecurity and a need to ‘fit in’. “Never slip into the age-old trap of spending money you don’t have, on things you don’t want, to impress people you don’t like.” Find fulfilment in who you are and what you do, instead of what you have.
A time for new financial beginnings
As most of us wave goodbye to the holiday season and pack away the last of the festive cheer, it is time to rethink, reinvent and reset! The start of a new year signals resolutions, new plans and better habits. Usually, these are all theoretical and we exercise it for a month or two. Then, we tend to lose our newfound momentum and return back to our old way of doing things.
Let’s make this year different! This could be a defining year for yourself, your family and your finances! Being committed in your planning, goal-setting and lifestyle improvements will uplift your attitude, beliefs and thinking about your financial journey. As the year kicks off, approach your finances with a fresh perspective. It will give your the opportunity to do a financial spring clean. If you don’t know where to start, now’s the time to invest in purchasing Destination Wealth! Dave’s book will empower you with the tools and knowledge that you need to perform a financial makeover. You can be your own financial manager and uplift yourself our of your lifestyle trap!
For those who are ever mindful and steering clear of the financial pitfalls, stay true to your financial course and be wary of the lifestyle trap. Do this by maintaining your financial focus, your budget, your investments and your emergency fund. Most of all, find joy and fulfilment in the non-monetary things that you hold dear this year.
Give a gift that keeps on giving
Now is the perfect time to set your loved ones on a financial wellness journey that will benefit them long after those new years’ resolutions have dissipated. Destination Wealth provides easy access into your finances and, regardless of your income, reveals how you can steer your course to wealth creation. Give your people a gift that will keep on giving for many years to come, that will uplift their financial situation – pay it forward this new year!
* Limited offer: Purchase your copy of Destination Wealth today and you will receive a 50% discount on your second copy to gift to someone that you feel will benefit from Dave’s financial success secrets. Visit the DW shop and order your two copies by using this coupon: PIFDW.