Finance Basics,  Other Important Stuff

Lifestyle Creep – The Enemy of Wealth

It’s no secret that today’s veterinary students are saddled with virtually insurmountable mountains of debt. Most will end up making income-based payments over 20-25 years, then pay the “tax bomb” and walk away. Yet there is another enemy of wealth accumulation and its called  “Lifestyle creep.”  Nothing can destroy wealth quicker. What exactly is Lifestyle creep? Its what happens when after years of living on a student budget or house officer salary one starts making a near (or over) 6-figure salary. It’s the sudden urge to replace that cramped apartment with a roomy house. It’s the desire to replace the second-hand car you purchased in college with a luxury automobile.  It’s the craving to make reservations not ramen. These are all normal wants; however, if left unchecked, these desires can destroy ones ability to accumulate wealth.

What is “wealth”?

Wealth is the value of all the assets owned by a person minus outstanding debts. Wealth is what allows us to sleep at night not worrying if the roof needs replacing. We already saved for that eventuality. Wealth allows us to plan a vacation because the money is already in the bank. Its what allows us to calmly look to the future and know that we are on track with our retirement investments. 

Surprisingly, wealth is not dependent on income. In fact, some high-income earners have little or no wealth. How is this possible? Well a couple that earns and spends $300,000 likely has little or no accumulated wealth. 

Lifestyles of the wealthy

Stanley and Danko did some groundbreaking research in their book  “The Millionaire Next Door.” They looked into the lifestyles of high wealth individuals and discovered some interesting facts. Doctors, physicians, lawyers, and dentists don’t  make up a large percentage of millionaires. In fact, these professions are associated with exuberant spending and a lack of savings.  In short, they suffer from the need to live a certain lifestyle. Who were the millionaires? They are people with ordinary jobs living in affordable homes diving inexpensive cars. What makes them unique is that they live well below their means. They actively budget and invest. Their children are financially independent. And in a nod to practice owners – most are business owners. It’s an interesting read and I highly recommend it. 

Lifestyle creep is the enemy of wealth

If you ever took an economics class, you probably remember that demand for a product creates supply. If people want something, companies will make it.   Money is unique in that a supply of money creates its own demand. People’s lifestyle tends to balloon until their income is used up.  I see it all the time. A new graduate purchases an expensive home. A third-year resident buys a luxury German automobile as soon as they sign a contract. Recent graduates eat out every night rather than cooking at home. And to be sure, no one ever went bankrupt occasionally stopping at Starbucks. But what’s the cost of stopping every morning? Income is finite. Every additional expense means there is less to save and invest. If we save less, we accumulate less wealth. 

How can we stop lifestyle creep?

Where we live

Well for starters, we should be careful about where we chose live. As we already discovered, deciding where we call home can have a major impact on the cost of living. Take for example two beach communities: San Diego CA and Tampa FL. A veterinarian in San Diego would have to make to least $112,000 to live the same lifestyle as a DVM in Tampa who makes $68,000. That’s a $44,000 difference! Where you earn your income is as important as how much you earn.  


When buying a house its important to realize that mortgage payments are just the beginning. Total “monthly payment” includes the mortgage, insurance premiums, property taxes, homeowner’s association fees and other various expenses. And this doesn’t include the 1%-3% of the purchase price you can expect to spend each year in repairs. Just because someone will lend you the money to buy a home doesn’t mean you should purchase it. My rule of thumb is that (“monthly payment” + utilities) should be less than 20% of monthly pre-tax income. And be cautious of private mortgage insurance and physician mortgages. They may or may not be the best deal for you. I went house shopping recently and it became painfully apparent that either I needed to be looking at smaller or older homes than I wanted or I needed to be looking outside of Scottsdale.  I decided to look in Phoenix where I found the home I wanted while staying within my “20%” rule. Clicking here, you can read much more about purchasing homes, traditional, private mortgage insurance and physician mortgages. 


An automobile is perhaps the worst investment ever. The typical car loses 20% of its value in the first year and 10% every year after. Some imported luxury cars fair even worse! This is why it doesn’t pay to buy luxury car – or at least not a new one. Personally, I drive a KIA. Its inexpensive, dependable and it get me to and from work just as well as a more expensive automobile. Another option is to purchase a used car. Stanley and Danko report that the three top car brands driven by millionaires are Toyota, Honda and Ford. At least 20% of millionaires buy their cars used. So who drives those expensive imports? Often its high-income, low net worth individuals. 


There’s no way around it – how much money we save and spend each month is a simple function of income and expenses. Unless you plan on moonlighting for Uber, you probably have little control over income. Since we don’t have much control over income, we need to control expenses. Experts agree that a budget is first step in expense control. It ensures that we save for the future, cover all our monthly bills, and spend only what we allotted.  A budget is key in controlling “lifestyle creep.” Probably the biggest obstacle that most of us face is knowing where to begin. The second issue is when budget busting expenses come up, like when the refrigerator dies. A few of these unexpected expenses and people throw up their hands.  But it doesn’t have to be quite so difficult. We cover budgeting and unexpected expenses elsewhere. 

One final note

There are a lot of questionable financial “experts” that would like to blame the current millennial economic plight on the propensity to drink Starbucks and eat avocado toast. Is this the real reason more 22-37 years old aren’t accumulating wealth? Of course not. While its convent to blame insignificant expenses like coffee and breakfast, the real problems facing millennials include stagnant wages, the cost of housing, student loans, etc. So why don’t experts make recommendations targeting the real issues? It’s because there is no easy answer to these problems so instead they blame the toast. So if you use the gym, pay for a membership. If you love avocado toast – splurge. And do these things guilt free. The important thing is to budget appropriately and make sure saving and investing are part of your budget. Some day you will want to buy a house, help send kids to school and retire.  A slice of toast isn’t going to meaningfully impact any of this as long as you plan appropriately. 

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