Balancing Act: Income Jump & Lifestyle Creep
Your lifestyle is fueled by your income and financial decisions. When transitioning from a Resident or Fellow to an Attending Physician, you will experience on average a 4-5X increase in income. This increase often comes with new financial challenges, such as a significant jump in tax brackets along with major lifestyle decisions.
One overlooked struggle Physicians face early on in their career is a “lifestyle creep.” This is the pressure and feeling that you are living paycheck to paycheck, despite earning significantly more than you’re used to. This begins as you decide to make upgrades to your lifestyle. You begin to purchase luxury items and create a new standard of “normal.” Often, you are spending this new income as fast or even faster than you are earning it. You find yourself spending more because you can, not because you have to.
The creep continues as your perspective of normal shifts further. What used to be distant wants, now become needs. Your personal wealth seemingly accumulates. However, this is not actually the case. Rather, your financial wealth and personal goals are diminishing as a higher standard of living has unexpectedly taken over. Once the creep progresses forward, it is hard to make the necessary adjustments. This is because your lifestyle and future financial health is in jeopardy.
Another challenge associated with income jump is the idea that you can just out earn your problems. You will find yourself spending more because of the lack of focus and strategy. While some might find that they can now use their increased income to pay off credit card debt and student loans, the situation often becomes a bit more complex. Specifically, you may start to forget about how hard life was financially before to getting to this point and as a result costing you more money in unnecessary interest, fees and taxes.
When tackling these financial problems, you might not consider your spending habits first. Rather, you are throwing yourself into an unhealthy cycle of heavy spending, both on important financial aspects and unnecessary lifestyle wants. While earning more is an essential way to dig yourself out of debt, the crucial part of building your wealth deals with your spending habits.
To avoid falling into these traps, consider the long-term effects of your financial decisions. Additionally, understanding your wants versus needs is important. For example, buying a more expensive and larger home at near the top of your budget can cause the feeling of being “cash poor” due to large mortgage payments and high property taxes. With each major financial decision, there are long-term consequences that threaten your overall wealth and financial health. If you are realistic and methodical with your spending along with having a plan you can easily adapt to your lifestyle upgrade. Having a focus on spending habits now will also makes other financial decisions easier such as saving for retirement or children’s education.
Remember the Biggie Smalls song: More money, more problems! Think about the impact that taxes have on your income and how the “lifestyle creep” can dramatically change the course of your financial life. Treat yourself, you earned it, but also pay yourself first because the future version of you deserves it!