Lifestyle Inflation

Today's post is a guest post from Matt. Matt is the founder and author of brucebucks.com, a blog about managing life and finances. Matt currently resides in San Diego, CA alongside his wife of two years.

Lifestyle inflation can be defined simply as increasing your expenses as you increase your income.  When you start to make more money and see “extra” money in your bank account each month, it can be tempting to think that you can now boost the way you live your life. For instance instead of eating at home for dinner every night, you use the extra money to go out to eat 2-3 times a week. Instead of buying necessities at the grocery store, you start purchases whatever you feel like. Due to the extra income there is less tension on your wallet, and you feel a freedom to buy and experience more of life’s luxuries.

So what is the big deal then? Why shouldn’t we enjoy life’s luxuries as we make more money and can afford it? The truth is you can’t afford it. If you are between the ages of 18-60 years old then you cannot afford lifestyle inflation.  Any extra income we bring in should be put towards savings, an emergency fund, a Roth IRA, your kid’s college fund, and any other savings goal you might have.  When we raise our lifestyle to the income that we make we decrease the amount of cash that we are able to stockpile. My advice to you is to setup a comfortable budget with the amount of income that you currently have, including some entertainment and fun, and stick to that budget as you increase your income. You will slowly go from having $200 left at the end of the month to maybe $2000. Imagine the amount of progress you can make on your financial goals by being able to put $2000 a month into those accounts.

So why do I bring up lifestyle inflation? I need my own advice. My wife and I are currently suffering from Lifestyle Inflation. When we first got married we started out on one Income at $31,000 a year. My wife had just finished school and was transitioning into teaching full time. Since then I have received two pay raises and my wife has received a long term teaching contract each year. We have doubled our income since we were first married. Our first few months we lived off of $2,300 a month and now our monthly spending is almost double that. Why? Lifestyle inflation. We have added the luxuries of gym memberships, vacations, Netflix, pets, new clothes, newer condo, new hobbies, and buying better foods.  Some of these increases are healthy, and good for our overall health, but there has to be a point where we stop increasing our spending or we will never accomplish our financial goals.

Although we are young and can make up time for our foolish ways, we could look back 30 years from now and deeply wish that we would have saved more. Our future has many expenses ahead and increasing the gap between our monthly expenses budget and our income is so important. The more we save now the more luxuries we will enjoy later. I encourage you to heed my warning and avoid Lifestyle inflation by maintaining your budget as you increase your income.

Pic by Yogendra174

Reestablish your bad credit with debt consolidation

This is a guest post from Sophie. Thanks Sophie! 

Americans have incurred insurmountable amount of debt and when they default on their payment they end up blemishing their credit report. In this situation, you can pay off your debts by consolidating it into a single monthly payment. You can consolidate your high interest credit card debts with a low interest rate loan. Make your payment on time and help to improve your credit score over time. 

1. You need to provide security deposit against the loan amount that you will take out to consolidate the debt. But if you fail to pay back the loan then you might lose your valuable property. Therefore, if you take out a debt consolidation loan it is advisable to pay it off on time.   

2. Before you take out a debt consolidation loan make sure that you compare the rates offered by different lenders so that you get loans at affordable rates. You can take out loan against your home equity as interest rate on this loan will be low and help you make the monthly payment affordable as well as assist you to rebuild the credit. 

3. You can hire a debt consolidation company as the professional arbitrators will help negotiate with the creditors on your behalf and lower the interest rate and penalty charges on the principal balance. You will able to eliminate your debt within 24 months and it will help to reestablish your credit report.

4. Avoid incurring more loans when you are working on paying your debts otherwise it might be difficult to come from the vicious cycle of debt. So once you start paying of your bills you will be able to rebuild your credit.

To Separate or To Combine

MSN Money recently published an article about whether or not married couples should share finances. The author, Len Penzo gives the pros and cons of joint and separate accounts:

Joint accountsOne of the biggest advantages of a joint account is the simplicity that it brings to managing your household finances. The Honeybee and I have used a joint checking account since we were first married. We pay all our bills from the same account, because we've agreed that every bill belongs to the household -- regardless of who generated it.

Pros. A big benefit of this philosophy is that it requires the couple to work together as a team when managing the household finances. As an added bonus, it adds a critical check-and-balance system that encourages spouses to think twice prior to making unplanned or impulsive expenditures without first consulting their partner. This makes it much harder for one spouse to become financially irresponsible without the other one knowing about it.

Cons. Well, it's definitely tougher to surprise your spouse with gifts for birthdays or the holidays, but I've found a way around that minor inconvenience. I simply tell the Honeybee to avoid looking at the credit card statement until she opens her gift.

Separate accountsMarriage may be a team sport but, believe it or not, sometimes it makes absolutely no sense to have a joint account. When one spouse is unable to control their spending, separate accounts help reduce the risk of the irresponsible spouse negatively affecting the good credit of the other.

Separate accounts also may make sense if one spouse has premarital financial issues stemming from, say, a bankruptcy or trouble with the IRS. In two-income households where the higher-earning spouse wants to allocate the household's resources in relationship to income, separate accounts can often help keep the peace too.

Pros. This approach permits each spouse to retain their financial independence, and helps each partner maintain separate credit histories. It also helps reduce arguments regarding how the household money is spent. (Estimate your credit score for free.)

Cons. Separate accounts are not only inefficient, but they also make money management somewhat more complicated. They demand less financial accountability when compared with joint accounts too, which doesn't help folks who have trouble spending less than they earn.

Since I'm recently married (and obsessive about my finances) I figured I would weigh in. I have to say I disagree that separate accounts are only helpful if one person has finanical issues. DH and decided to have one joint savings, with an attached checking account. Otherwise everything else is separate. Neither one of us has spending problems or a dark finanical history. Instead, we trust each other and understand the benefit of having freedom in our accounts. We budget together so that we can save the same amount and have the same amount to spend.

Honestly, I think everyone has to decide what works best for them. There are many more pros and cons to separate or combined accounts than are mentioned above. What matters most is that it works for you.

Two Days To Go

I'm leaving for vacation Wednesday morning. I've managed to come to a great point at work, with only a few more small things to wrap up. However, I have a ton to do in my personal life to get ready. I haven't even begun to start packing (I'm one of those people who normally starts a week a head of time) and there is still laundry and last minute errands.

I can't wait to be on that plane heading to three weeks of just hubby and I!

Friday Fun

A few funny links to brighten your Friday -

The map of America as seen by a New Yorker

How to keep a Harry Potter fan in suspense

If facebook and twitter were off-line:

What's Next - for my social life

Now that I'm officially done with school I've been thinking about what I'm going to be doing with all my free time. I can't tell you how excited I am to actually have a life! And while it is true I am a planner, having to plan out my entire semester in advance gets old.



I do have some really fun things coming up:

• We are having a retirement party for my mom this weekend. It is turned into a kinda family reunion and I'm super excited!
• DH and I leave for our three week honeymoon in a week. We got married in November, but never got a chance to go away. So yes, I'm counting down the days!

I'm not sure how much longer DH and I will be living in NYC. We've decided to make sure that we take advantage of NYC this year. My hopes are to:

• Spend our weekends tracking down some of delicious food trucks and finally try them!
• We bought a a NYC travel book with the goal of checking all the sights and things to do over the course of a year. 

We also get to be more spontaneous as I won't always have to say "no I can't go I have to do work". So very excited!!! 

And We Call That Done

Last night I turned in my last final to my last course in my graduate program. I now officially have my second masters degree. That is right folks I know have an M.A. and an M.P.A. Oh, and I'm officially done with school! 

I'm not saying I'll never take another class again, but I will never be enrolled in another degree program. I've now studied the policy of my field and management of my larger sector. I'm incredibly happy with my education and feel very prepared to move forward in my career.

The only question is - what do I do next?

A Call for Guest Posts

Dearest Readers,

I'm going to be traveling from the end of July through most of August. While I'm working on writing some pre-scheduled posts I would love to also post some content from you. If you are interested in writing a guest post please email me at alwaystheplanner(at)gmail.com.

Yours,
asgreen

picture by Kristina B

Over 50% of the way there!

My major goal of 2010-12 is to get my student loan down to four digits. I'm happy to report that I am 52% of the way there!

Reducing my loan to $9999 has become a huge priority for me.  For some reason I've convinced myself that if I can get to that amount I can pay off the rest easily. Of course, $9999 is still a lot of money. Part of the reason I think I'm so focused on getting to this number is that it means I'll have paid off 50% of what I owe over five years. This is a bigger deal than it sounds like because I've been in deferment for the past two years. If I can get there, then hopefully I can pay off the rest in two to three years.

I find so much in my life is mental. Once I get over a certain hump or past a certain point I feel amazing better about things. However, it takes a lot of work and dedication to get over that point. Does anyone else feel this way?