You’re making more money as a family than you ever have before and paying off your credit card each month. Student loans, if you haven’t paid them off already, are a manageable monthly expense and you’ve built up a solid cash cushion in an online savings account that actually pays you some interest.
If you’ve used your growing income to put you and your family on solid financial footing... that's great!
But if you’re not careful, it’s easy to land right back where you started, racking up credit card debt and wondering how you wiped out your cash cushion so quickly.
The silent but deadly killer in the land of first world problems is lifestyle creep.
When you have more money rolling in the door than ever before, it’s easy to spend freely and not notice how close you might be coming to the edge.
Here’s a simple equation to help illustrate this concept:
Income – Expenses = Breathing Room
Making $300,000 a year and spending $320,000 a year is a one-way ticket back to the land of financial problems. Or put another way…
You can’t earn your way out of a spending problem.
Recognizing the difference between lifestyle creep and leveling up is key.
Lifestyle creep is when your expenses grow faster than your income, leaving you with no breathing room. Let’s say your current income of $300,000 increased by $50,000 but your current expenses, which are $300,000, did as well...
Income of $350,000 – Expenses of $350,000 = $0 of Breathing Room
Leveling up is when you increase your spending on something that matters to you but you are careful to leave sufficient breathing room. Let’s say your current income of $300,000 increased by $50,000 but you only increased your current expenses, which are $300,000, by $14,000…
Income of $350,000 – Expenses of $314,000 = $36,000 of Breathing Room
From my personal experience working with clients on both sides of the equation, I can assure you that the family with $3,000 a month of breathing room is a lot more relaxed, well rested, and fun to be around than their neighbor who outwardly appears to have “more” but actually has no breathing room to speak of.
How much breathing room have you built into your life?
Are you consciously leveling up or is lifestyle creep rearing its ugly head?
If you and your family need help answering these questions together, let’s talk about it.
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