The Money Nerd Opinion on Avoiding Lifestyle Creep
This is How to Avoid Physician Lifestyle Creep
I’ve been thinking a lot about physician lifestyle creep. It happens so gradually which means that you usually don’t notice. The problem is when lifestyle inflation is not controlled—it can get out of control and hinder your ability to live your ideal life. It begins with a purchase here, then a purchase there. It turns into needing a better car, a bigger house, or a more luxurious vacation. During this is a slowly evolving physician lifestyle creep. Before you know it, almost imperceptibly, your finances and future wealth are being undermined. How do you stop physician lifestyle creep in its tracks? The first step is to become aware of how this insidious beast works!
What Does Physician Lifestyle Creep Look Like?
As residents, you will finish your training making $50,000 or $60,000. When you reach the major milestone of becoming a full-fledged attending physician, your income will jump to approximately $200,000 and $250,000. However, you also have some student debt going on adding to your student loan problem.
That means you’ve probably been in an income-based repayment plan.
That payment will increase.
That is when the financial pressure and restriction you felt as a resident might start taking its toll.
That old car with the duct-taped seats is suddenly not good enough. It looks like the time for a new car. This is a common problem for new attending physicians. The question is how do you control physician lifestyle creep so that it does not derail your future wealth?
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You’ve taken the first step—you know what physician lifestyle creep is. The second step is understanding how easy it is to get caught up in the cycle of lifestyle inflation. It is a common phenomenon among new physicians. I recently talked to Whitney Hansen from The Money Nerds Podcast about physician lifestyle creep. She told me it is a topic she is passionate about and sees often. She explained that the whole concept of physician lifestyle creep is when you are increasing your lifestyle to a point where your financial means can’t support it. It is the point where you take things too far and put your future at risk. We move on to the third step—learning to control physician lifestyle creep.
How Do You Control Physician Lifestyle Creep—avoid lifestyle inflation all together?
Since physician lifestyle creep is so common among my friends, when they approach me with tales of woe, I have to ask them “Do you want me to put on my friend hat or my financial advisor hat?” Whitney does the same with her friends, she asks them “Do you want my advice, or do you just want me to listen?”
Regardless of which hat she decides to wear. Whitney came up with some great questions for anyone intending to make a purchase. She said that after getting a raise or business increase, she asks herself some important questions before pulling out her wallet:
- What is truly important to me?
- Why do I want this new thing?
- Am I buying it to make me feel better?
- Is this something that I truly need?
She said if you’ve been sleeping on a twenty-year-old mattress, which is a perfect example of a justifiable purchase, by all means make that purchase. There are other reasons without taking into consideration the potential back and health problems to justify buying a new mattress. Truly the thought of twenty years’ worth of dead skin cells is enough to convince anyone that this is not a case of physician lifestyle creep!
The scary part about lifestyle inflation is that it is usually so gradual that you don’t notice. So, the question becomes what is and is not physician lifestyle creep? Whitney tosses out some additional questions that may help keep your spending in perspective:
- What am I working toward?
- What is my end-game plan?
- Why is what I am working toward important to me?
- Why am I purchasing this?
I personally feel that sometimes for some new attending physicians the physician lifestyle creep may be sudden. An example is a new physician who has just left training. He lives in an apartment with three children. He and his wife decided they need more space. They may need to step back and define their definition of “space”?
Do you mean a 6,000 square foot house or do you mean a 1,500 square foot house in a decent area? Jumping straight to the largest option is the type of physician lifestyle creep we are discussing. In the example, you are jumping into the “doctor house” or “dream house”. Do physicians buy or rent?
I see a lot of new physicians who suddenly want to drive a Tesla. Do you want the Tesla because you think it is the most amazing build or is it the status of owning one that draws you in?
During our discussion regarding physician lifestyle creep, Whitney brought up a valid point in that there are times when an athlete or lottery winner suddenly comes into a heap of money. They go crazy spending money because they are in the scarcity mindset. She said they spend as much money as they possibly can because they don’t believe that it will last or be there later. She feels that people with impulsive spending habits have a scarcity mindset. That if you believe money is abundant you won’t feel the need to spend it all in a rush.
Another way that physician lifestyle creep enters the picture can be similar to when a football player has signed a multi-million-dollar contract. He won’t get all the money upfront and it may be contingent upon him staying in the area he signed for. But essentially spending all that money before you have it can contribute to the creep.
One of the mistakes I see a young physician make is thinking the job will be amazing and he will live in a particular area forever. So they buy into a long-term, expensive mortgage.
However, the average new physician will end up leaving his first job in the first few years. While he is looking forward to earning the millions, and not even pausing to contemplate that he may one day want to leave, the physician lifestyle creep has begun.
To complicate matters, he may not have considered that he may decide to make a change that could lead to an interruption or cut in pay. Or that he might have to back a bonus if he leaves before a contract ends.
This is why it’s important to build a foundation of financial knowledge!
How Do You Put a Boundary on Physician Lifestyle Creep?
I see new attending physicians who have sacrificed and skimped in many areas of their life during their training and residency. When they become a new attending physician, they are ready to splurge—so how do you place boundaries on your new ability to indulge in wants and needs?
A starting point is asking yourself a couple of questions:
- Why do I feel like I’m not living a certain lifestyle?
- Why do I feel like my current lifestyle is not good enough?
- What is an area of your life that really may need attention?
Then create a list of your wants and needs, then put a price tag next to them. What will each of your they cost you? Set up some faux budgets adding the cost of something on your want list and see how it looks and feels.
It will be a trade-off. Spending more money on a larger mortgage means less in your retirement account. Less in your retirement account will mean working extra years. Whitney said something that really struck me. That sometimes seemingly small choices have huge implications in the future. She added that the material things we say “Yes” to today directly impact your freedom in the future. If you go crazy now or allow physician lifestyle creep to divert you from your future goals to build wealth and retirement, you will feel the impact down the line. It could mean the difference between being financially secure or living pay check to pay check despite a good salary.
Physician Lifestyle Creep Vs. the B word
I try to use the term “cash flow planning” instead of the B word (budget). I look at budgeting as looking back, whereas cash flow planning is planning. The secret to avoid getting ahead of your spending is to check in with yourself. I consider this a monthly preventative check. Another smart thing to do is get your spouse on board. Are you wondering how to make cash flow planning with your spouse pain free? I suggest going on a money date!
I’ve talked with Elle Martinez on my podcast about going on a money date AKA “getting financially frisky with your spouse.” I would recommend that podcast to everyone. I am also big on paying yourself first so that it doesn’t matter how you spend the rest, if you know approximately how much you spend per month you don’t really need to budget. You know what your fixed expenses are (mortgage, utilities, student loans, groceries) and have an idea of variable expenses, so if they are within the band of income left after you’ve paid yourself, there is no need to budget. But before you do anything else place money in your 401K, IRA, or taxable accounts!
You can enjoy your luxuries (for example Starbucks coffee) and they will not be considered physician lifestyle creep. It is knowing that you make a choice where in your spending to splurge. It will be either this or that—it’s not splurging in every category! So, savor your luxuries just not at the expense of all your other goals.
Whitney and I agree that debt takes away your freedom. It goes along with the saying “You can have anything, but not everything”. The sooner you are debt free the more choices you have. It gives you the ability to say “yes” opens your life to new adventures. Physician lifestyle creep and its debt burden you and take away your choices.
I’ve talked and written many times about living your ideal life. I advocate sitting down and asking yourself some questions—and understanding your own personal “why”:
- What do I want to do in life?
- How do I want to spend my money?
I would write down all the upgrades I wanted to make in my life. I would rank, prioritize and attach a price tag to them. This would help me come up with ideas and decide what is important.
Physician Lifestyle Creep and Keeping Up with the Joneses
As I was discussing physician lifestyle creep with Whitney, she emphatically dismissed the idea of caring about what anyone else thinks of us, especially people we don’t even know. She points out that it doesn’t matter what car you drive if it gets you from point A to point B.
She stated that if you choose to upgrade your car it should be because you enjoy cars—that is a valid reason. It should not be to measure up to anyone else’s expectation of you because you are a doctor. If you are doing anything based on what someone else thinks you are not on the right path.
I think physician lifestyle creep goes back to a new physician pulling into the parking lot in a car that looks inferior to the attending physician’s new or exotic cars. Real wealth is:
- Financial security
- Money in the bank
- Having a net worth
Whitney advises you to get excited about seeing your savings accounts grow. She came to realize what real wealth was after she noticed that a lot of people who had a showy lifestyle, perhaps a better car or house were in debt. She would rather have a car or house that was paid for and be free of debt.
This brings us back to the previous questions that will help decide whether to make a purchase, setting financial boundaries or what you want to do with your money. Those questions will help you delve into your emotions and let you see the reasons you are considering a specific purchase.
Once you know what you want, what the trade-offs are and the emotions behind the purchases you consider, then you can truly see what is important to you and avoid physician lifestyle creep.
Have you ever bought something impulsively? Did you later regret it? Have you made a purchase to impress someone else or to unconsciously measure up to them? What did it teach you about your own motives? How will these questions help you to avoid physician lifestyle creep and develop positive financial habits? Join the Financial Residency Community on FB and let us know!