Too many of us have gradually gotten used to a lifestyle that exceeds our spending power. This is a phenomenon known as lifestyle creep, and if you haven’t yet experienced it, you likely will in the future. There are many reasons why lifestyle creep develops, but regardless of how it starts, it’s completely on you to find ways to reverse it.
Why Is Lifestyle Creep a Bad Thing?
Lifestyle creep typically sets in for a combination of reasons. Gradually, things you considered a luxury will come to be basic expectations; for example, you might go out to eat twice a week as a splurge, but soon, it will become a staple of your life, and anything less would be considered a sacrifice. You might also increase your spending as your income increases, or to keep up with your friends or neighbors; for example, you might be motivated to buy a newer, better car because your neighbor has one.
Why is this a bad thing?
One of the golden rules of personal finance is that you should always live below your means; in other words, you should spend less money than you make. This allows you to capitalize on a leftover amount, which you can save as part of an emergency fund and/or invest. If you do this consistently, and if the gap between your earnings and expenses is big enough, you could easily accumulate enough wealth to retire—and probably well before your expected retirement age.
So what steps can you take to downsize your lifestyle now?
Sell Your House and Move Somewhere Else
First, think about your home. Your housing expenses are likely the biggest part of your regular budget, so any savings here can be substantial. Your choice in neighborhood can also have an impact on secondary expenses, including property taxes, utilities, and more.
Generally speaking, most people can live comfortably in a smaller, lower-quality place than where they currently live. Consider this hypothetical scenario; if you’re currently making a $1,500 mortgage payment, with $400 in utilities each month, you can probably move to a place that offers a $1,000 mortgage payment with $250 in utilities each month, resulting in $650 in savings. That $650 in savings accumulates to $7,800 per year. If you invest that money, and see a modest 7 percent return on your investment annually, within 10 years, you’ll have more than $123,000.
The trick is to get started quickly, so you can start accruing that extra money sooner. One of the best ways to do this is to sell your home as is, all in cash; with the proceeds, you should be able to put a down payment on another, less expensive property, and start making lower monthly payments.
Rethink Your Transportation
Your next biggest expense item is likely transportation. If you’re like most Americans, you own a car, and it’s probably pretty nice. High-end cars look good and are comfortable to drive, but they’re also ridiculously expensive—especially when you consider high insurance costs, repair costs, and fuel. You’re much better off driving something smaller and more economical.
Of course, if you’re willing to make a bigger downgrade, you might consider abandoning your personal vehicles altogether. Instead of driving a car, you could take public transportation, or ride a bike to where you need to be.
Next, take a look at all the subscription costs you’re paying; if you haven’t thought about it in a while, you may have accumulated more subscriptions than you thought. These tend to be automatically charged every month, so you don’t notice how much you’re spending in total. Do you really need to be subscribed to four different streaming services? What about that gym membership? Depending on your current lifestyle, you may be able to cut out $100 or more simply by trimming the fat and cancelling the subscriptions you rarely end up using.
Cook Your Own Meals
The average restaurant meal costs about $12.75, and the average American spends $232 per month eating restaurant-prepared meals. But if you prepared those meals yourself, you’d be able to save a ton of money. That doesn’t mean you have to stop eating at restaurants altogether, but even a small cutback can have a massive impact on your budget. Learn basic cooking skills, and look for the best possible prices when you shop for groceries.
Chances are, you’ll be able to downsize your lifestyle without truly feeling the sacrifice. Do you really need all 1,500 square feet of your current house? Do you really need that expensive sports car? You might even be happier in your new, more minimal lifestyle—and you’ll certainly be better poised for a bright financial future.
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