The one thing that is killing your retirement goals...Jun 04, 2023
Let me guess, you've been doing a whole lot of things right when it comes to retirement planning.
✅Automated your monthly investing contributions,
✅Invest consistently every month,
✅Pay yourself first,
✅ Have goals and are working towards them,
✅ Maxing out your employer pension/RRSP matching plans
Am I right? Those are all good things!
There is one thing that though that could be significantly eroding the growth of your investments and increasing the number of years that you have to continue working.
And it's not the stock market or the one bad stock you picked or your financial advisors fund picks....
It actually starts before you even invest and it's called Lifestyle Creep.
Lifestyle creep is when we keep increasing the standard of our living every time we get a raise or a promotion or an increase in income by spending the money, instead of investing it.
It can start out small like ordering an expensive bottle of wine, buying more expensive designer clothes, and it can morph into bigger things like buying a luxury car or buying a bigger house.
This, my friend is the true robber of wealth.
Have you ever heard the saying - it's not how much money you make, it's how much you keep?
This is why 78% of professional athletes go broke within 3 years of retirement. Their incomes explode for a period of time and they suddenly start living an exorbitant life, and don't adequately plan for the future when the paycheque stops.
I know you work hard, and you should treat yourself on something here and there but when each and every raise just gets thrown into the pile of money to be spent - it's truly a lost opportunity!
And look, I'm the first one to admit - I could be fully fully retired right now if it weren't for lifestyle creep during the late 30s/early 40s. I have no kids, no one to support and if I'd been a bit more focused, I could have SO much more invested right now than I do. Hindsight is 20/20 isn't it?
I got to a phase in my life though, where I started to realize that I wanted more. When I say more, I don't mean stuff. I mean flexibility, freedom, choice and then I really got focused on creating a baseline of living and holding it there, regardless of my paycheque. But it did take me a little longer than I would have liked, in hindsight.
**as a side note, I'm totally happy where I am at and am not dying to stop working tomorrow (because this work I do, rarely feels like work!)...but it's always nice to have more options!
So how do you prevent lifestyle creep? It's a process I call SAVE YOUR RAISE.
Literally, when you get a pay increase, do the following:
- Take your new pay stubs with your new net pay and calculate the difference between your old net and your new net pay.
- Save and invest that difference! Add it to your other regular investing contributions.
- Automate the payment.
- Then watch your investments explode!
It's that simple!
And if you have a new income stream or an increase in income from your side hustle or overtime or whatever, send it out to your investments before you spend it! (if it's income, don't forget to hold some back for tax if you haven't been taxed at source though).
And look, I get it if you want to hold a bit back for something nice for yourself. We must enjoy the journey to financial freedom, but be INTENTIONAL! Don't just put it all in the pile and spend it whimsically. This is such a wasted opportunity and literally adding years to your working life, instead of moving your work-optional date forward!
And honestly, your 40 or 50 year old self will thank you for doing this, because these are the years when you actually start to think about when you can retire and how....and the houses and the overpriced stuff starts to seem like a bit of a waste in exchange for freedom with your time! (Take it from someone that knows 😉)
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Much love, gratitude and money xx