Lifestyle creep is when higher income leads to higher discretionary spending — in other words: the more you make, the more you spend on experiences and things you don’t necessarily need.
Published December 10, 2021
Lifestyle creep is when higher income leads to higher discretionary spending — in other words: the more you make, the more you spend on experiences and things you don’t necessarily need. It’s a trap that prevents many high earners, and often doctors in particular, from achieving their financial goals. Fortunately, it’s also a trap you can avoid with a little awareness and preparation.
Lifestyle creep is a problem for many high earners, but it can be particularly difficult for doctors to ward off. That’s because what doctors experience is typically less like “lifestyle creep” and more like lifestyle “skyrocket.”
An attending physician’s first paycheck is a significant milestone. It’s a fitting reward for the years of demanding work it took to make it through med school, residency, and maybe even a fellowship. And it’s completely understandable, if there’s a temptation to celebrate with a little splurging – you’ve earned it!
The problem is that it’s easy for a little splurging to become the norm and what began as a little treat, may become part of an increasingly expensive lifestyle. And before you know it, your elite gym membership, brand new car, and heated pool can begin to feel like necessities, rather than luxuries.
And it can get worse — when the shine fades on your new things and they no longer give you the same thrill they did in the beginning, you may be tempted to search for something more. This is called the “hedonic treadmill” — the search for one pleasure after another — and it’s much easier to avoid getting on it in the first place than to get off it later down the line.
As a new, or almost-new attending, you’ve lived on a student and resident budget for nearly a decade. So, before you take on a hefty mortgage, car payments, and subscription services that can eat up your whole paycheck, it’s important to remember that while you’ve certainly earned the ability to live a life of luxury, you‘ve also proven that you can live without it.
Of course, just because you survived those years doesn’t mean you thrived, and the promise of a physician’s salary may have helped motivate you. Now that you’ve achieved it (or are on the verge of achieving it) you should aim to strike a balance between fun and financial goals. And it’s much easier to find that balance by slowly adding luxuries to your lifestyle, rather than piling them up quickly and having to remove them later. Stay off that treadmill!
The key to fighting lifestyle creep is to make sure your daily financial decisions line up with your overall financial goals and vision for your life. The following steps should help.
The first and most important step to avoiding lifestyle creep is to identify your primary financial goal.
Some common financial goals are retiring early (commonly known as FIRE — Financial Independence, Retire Early), buying a dream home, supporting a large family, or traveling the world.
You may be wondering how setting such ambitious goals helps avoid lifestyle creep! The catch is that you only get to pick one. Then, all of your subsequent financial choices have to be made in service of that primary goal.
Once you’ve determined your primary goal, you need to figure out how much money you’re going to have to set aside each month to make it a reality.
After you’ve calculated the monthly savings contribution needed to reach your goal, add up your mandatory monthly expenses — such as rent or mortgage, retirement fund contributions, student loan payments, and your various insurances (you do have up-to-date term life and disability insurance , right? If not, add that to the list!).
Next, add the two numbers together and you’ve got your total non-discretionary monthly expenses. Once you’ve set aside funds to cover these expenses, the rest of your paycheck is yours to do with as you wish. To get started, use our simple 50-30-20 budget calculator.
Continuing to live like a resident for your first few years as an attending – while aggressively paying down your med school loans and other debt – is the best financial choice you can make.
Making a gradual transition from the lifestyle of a resident to an attending should give you lots of room to tackle your student loans, and will help you build healthy budgeting habits that should make managing your larger salary more sustainable.
As you gradually expand your lifestyle, you may even find yourself savoring your splurges more when you do make them. Call it “mindful splurging.”
Often, the pressure to increase your spending begins at work. Seeing other physicians take fancy vacations, buy flashy cars, or brag about their new mansions, can make it difficult to stay on track towards your own primary goal. It can be especially tough if you begin to tell yourself that you’ve earned the right to spend the same way your colleagues do.
Of course, you do have the right to enjoy the fruits of your hard work. If you want to spend your money on a beautiful home, world travel, or classic cars, go for it! Just check in with yourself from time to time, and be sure that these are true desires aligned with your goals, and not just trying to keep up with the lavish spending of colleagues.
Lifestyle creep is an easy way to get derailed from realizing your financial dreams. Doctors are particularly vulnerable to this affliction because a decade of training often makes them eager to reap the rewards of their labor. The challenge is to gradually transition to an attending lifestyle despite the immediate and dramatic salary increase. The key is to pace yourself. Determine your primary financial goal, set a budget that’ll help you achieve it, expand your lifestyle slowly, and resist the urge to keep up with the Dr. Joneses. After just a few years of sticking to your budget and paying down your med school loans, you may find the financial security and freedom you need to live your best life.
In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.