The Prescription for Lifestyle Inflation
Eric Franklin
Sep 23, 2019
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
— Mr. Micawber in Charles Dickens’s, “David Copperfield”
Being poor sucks. Being poor while surrounded by peers signaling their successes via highlight reels on Instagram and Facebook 24/7, is even worse.
Today I’d like to talk to you briefly about Lifestyle Inflation and how you can mentally frame a way of thinking about your income so that it instead provides you with a growing sense of well-being, comfort, and and self-determinism as you get older.
Statistically speaking, most people grow their income quite substantially in the early years of their career. If you’re not careful, indulging the urge to signal success to your cohort can outstrip your income growth leaving you more dependent on your job or career than when you began; and if you’re absolutely reckless, you can end up not owning anything with which to leave a legacy to your family, friends, or favorite charities. That, my friends, is a bitter pill (entirely unnecessary).
So here’s the secret. You’ve probably heard of the financial rule “Pay Yourself First.” My secret is a slight tweak to that rule; I call it “Pay yourself _more_ first.”
Here’s the way it works. Any time you come into money above and beyond what your normal income has historically provided, you take **at least** 50% of that newly found money and put it towards your financial future. If you receive a $1,000 annual raise, on day 1 of that new raise coming you through, you allocate 50% of the incremental bump towards your longer-term savings and investments and ensure that it automatically routed from your paycheck to wherever that source is (DO NOT put this in the same account where you pay your monthly bills and credit cards from).
You have to be able to look at windfalls as an excuse to save more if you ever hope to get ahead. Here at Prospero Wealth, we think the FIRE (Financially Independent Retire Early) community is a little too radical for most folks, even though we think they’re on the right track. They would probably tell you to forego all pleasures and accelerate your path to independence. If that’s you, knock yourself out. Love it. Support it. Get yours.
For most people though, we’d recommend “Slo-Fi,” the steady and predictable path to Financial Independence (while enjoying your life along the way). It’s a little bit more the way I roll. I happen to like work on most days, so I don’t go crazy trying to avoid it, but I also think a large part of me enjoying work is that I have the flexibility and autonomy to leave and do anything I want to.
So the real behavioral insight to this approach is that if you can commit to it, you won’t want to stop at 50% once you see what it starts to do for you. If you’re like me, you may even start playing this game of “stash your money” in more and more places. While I discovered the trick in my twenties, I’m now at a point where I allocate 100% of my company’s stock incentives (which is basically my 2x/year bonus) as well 80-90% of pay increases or cash-outs from other sources. The longer my family and I can keep up this pace of saving for our future, the more we can sustainably grow together — which is what this is all about.
The great thing about this approach is that it’s a concrete place to start. I hope you become as addicted as I have to expanding your own long-term flexibility.
If you like posts like these, follow us on Twitter or sign up for our newsletter. There’s more with this came from!
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
— Mr. Micawber in Charles Dickens’s, “David Copperfield”
Being poor sucks. Being poor while surrounded by peers signaling their successes via highlight reels on Instagram and Facebook 24/7, is even worse.
Today I’d like to talk to you briefly about Lifestyle Inflation and how you can mentally frame a way of thinking about your income so that it instead provides you with a growing sense of well-being, comfort, and and self-determinism as you get older.
Statistically speaking, most people grow their income quite substantially in the early years of their career. If you’re not careful, indulging the urge to signal success to your cohort can outstrip your income growth leaving you more dependent on your job or career than when you began; and if you’re absolutely reckless, you can end up not owning anything with which to leave a legacy to your family, friends, or favorite charities. That, my friends, is a bitter pill (entirely unnecessary).
So here’s the secret. You’ve probably heard of the financial rule “Pay Yourself First.” My secret is a slight tweak to that rule; I call it “Pay yourself _more_ first.”
Here’s the way it works. Any time you come into money above and beyond what your normal income has historically provided, you take **at least** 50% of that newly found money and put it towards your financial future. If you receive a $1,000 annual raise, on day 1 of that new raise coming you through, you allocate 50% of the incremental bump towards your longer-term savings and investments and ensure that it automatically routed from your paycheck to wherever that source is (DO NOT put this in the same account where you pay your monthly bills and credit cards from).
You have to be able to look at windfalls as an excuse to save more if you ever hope to get ahead. Here at Prospero Wealth, we think the FIRE (Financially Independent Retire Early) community is a little too radical for most folks, even though we think they’re on the right track. They would probably tell you to forego all pleasures and accelerate your path to independence. If that’s you, knock yourself out. Love it. Support it. Get yours.
For most people though, we’d recommend “Slo-Fi,” the steady and predictable path to Financial Independence (while enjoying your life along the way). It’s a little bit more the way I roll. I happen to like work on most days, so I don’t go crazy trying to avoid it, but I also think a large part of me enjoying work is that I have the flexibility and autonomy to leave and do anything I want to.
So the real behavioral insight to this approach is that if you can commit to it, you won’t want to stop at 50% once you see what it starts to do for you. If you’re like me, you may even start playing this game of “stash your money” in more and more places. While I discovered the trick in my twenties, I’m now at a point where I allocate 100% of my company’s stock incentives (which is basically my 2x/year bonus) as well 80-90% of pay increases or cash-outs from other sources. The longer my family and I can keep up this pace of saving for our future, the more we can sustainably grow together — which is what this is all about.
The great thing about this approach is that it’s a concrete place to start. I hope you become as addicted as I have to expanding your own long-term flexibility.
If you like posts like these, follow us on Twitter or sign up for our newsletter. There’s more with this came from!
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
— Mr. Micawber in Charles Dickens’s, “David Copperfield”
Being poor sucks. Being poor while surrounded by peers signaling their successes via highlight reels on Instagram and Facebook 24/7, is even worse.
Today I’d like to talk to you briefly about Lifestyle Inflation and how you can mentally frame a way of thinking about your income so that it instead provides you with a growing sense of well-being, comfort, and and self-determinism as you get older.
Statistically speaking, most people grow their income quite substantially in the early years of their career. If you’re not careful, indulging the urge to signal success to your cohort can outstrip your income growth leaving you more dependent on your job or career than when you began; and if you’re absolutely reckless, you can end up not owning anything with which to leave a legacy to your family, friends, or favorite charities. That, my friends, is a bitter pill (entirely unnecessary).
So here’s the secret. You’ve probably heard of the financial rule “Pay Yourself First.” My secret is a slight tweak to that rule; I call it “Pay yourself _more_ first.”
Here’s the way it works. Any time you come into money above and beyond what your normal income has historically provided, you take **at least** 50% of that newly found money and put it towards your financial future. If you receive a $1,000 annual raise, on day 1 of that new raise coming you through, you allocate 50% of the incremental bump towards your longer-term savings and investments and ensure that it automatically routed from your paycheck to wherever that source is (DO NOT put this in the same account where you pay your monthly bills and credit cards from).
You have to be able to look at windfalls as an excuse to save more if you ever hope to get ahead. Here at Prospero Wealth, we think the FIRE (Financially Independent Retire Early) community is a little too radical for most folks, even though we think they’re on the right track. They would probably tell you to forego all pleasures and accelerate your path to independence. If that’s you, knock yourself out. Love it. Support it. Get yours.
For most people though, we’d recommend “Slo-Fi,” the steady and predictable path to Financial Independence (while enjoying your life along the way). It’s a little bit more the way I roll. I happen to like work on most days, so I don’t go crazy trying to avoid it, but I also think a large part of me enjoying work is that I have the flexibility and autonomy to leave and do anything I want to.
So the real behavioral insight to this approach is that if you can commit to it, you won’t want to stop at 50% once you see what it starts to do for you. If you’re like me, you may even start playing this game of “stash your money” in more and more places. While I discovered the trick in my twenties, I’m now at a point where I allocate 100% of my company’s stock incentives (which is basically my 2x/year bonus) as well 80-90% of pay increases or cash-outs from other sources. The longer my family and I can keep up this pace of saving for our future, the more we can sustainably grow together — which is what this is all about.
The great thing about this approach is that it’s a concrete place to start. I hope you become as addicted as I have to expanding your own long-term flexibility.
If you like posts like these, follow us on Twitter or sign up for our newsletter. There’s more with this came from!
7724 35th Ave NE #15170
Seattle, WA 98115-9955
(971) 716-1991
hello@prosperowealth.com
Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the States of Washington, Oregon, and California and in other jurisdictions where exempted. We are conditionally registered in Texas.
© Prospero Wealth 2024. All rights reserved.
7724 35th Ave NE #15170
Seattle, WA 98115-9955
(971) 716-1991
hello@prosperowealth.com
Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the States of Washington, Oregon, and California and in other jurisdictions where exempted. We are conditionally registered in Texas.
© Prospero Wealth 2024. All rights reserved.
7724 35th Ave NE #15170
Seattle, WA 98115-9955
(971) 716-1991
hello@prosperowealth.com
Prospero Wealth, LLC (“PW”) is a registered investment advisor offering advisory services in the states of Washington, Oregon, California, and in other jurisdictions where exempted.
© Prospero Wealth 2024. All rights reserved.