Weekend Reading: Lifestyle Creep Edition
I swear half my job is to convince my frugal clients to spend a bit more money. I’m not talking about making a complete 180 degree turn to become a different person. But if you’ve always stayed at a Best Western, then an upgrade to the Ritz every once in a while won’t kill you. Heck, you might even enjoy it!
Part of this push to spend more comes from my work with hundreds of retirees who don’t (or cannot bring themselves to) spend up to their capacity. After years of frugal living, never exercising those spending muscles, it’s next to impossible to turn off the savings taps and turn on the spending taps in retirement.
Seeing this firsthand caused me to reevaluate my own priorities. I always prided myself on a high savings rate without necessarily looking down the road at what I was saving for. How much money was enough? As John D. Rockefeller famously quipped, “just a little bit more.”
We’re also fortunate as business owners to get to decide (for the most part) how much we pay ourselves. It’s common advice for business owners to shelter as much income inside their corporation as possible and pay themselves just enough to pay their personal expenses.
That’s pretty much what we were doing until 2022, when we decided to make a big change and upgrade our house. Our larger mortgage payments, increased desire to travel, and our growing children meant life was more expensive on the personal side of our ledger.
We needed to give ourselves a raise, and so that’s exactly what we did last year and again this year.
We also needed a system to strike the right balance between enjoying life today and having a comfortable retirement.
Very loosely, we’re saving about 20% of our personal income (TFSAs and RESP), setting aside 20% for taxes (paid in quarterly instalments), spending 20% on total housing costs, 20% on daily living (groceries, transportation, health, kids’ activities, etc.), and 20% on travel and guilt free spending.
Yes, the 20-20-20-20-20 budget. I should patent that!
In the past, it was tempting to limit some of the spending categories by either allocating more to personal savings, or by simply paying ourselves less and leaving more in the corporation to invest. In fact, it was typical for us to invest 25% of our business income.
The problem was that trajectory was reducing our standard of living today while kicking a big ol’ tax can down the road in retirement when income sources like corporate dividends, RRIF and LIF withdrawals, and CPP and OAS collided.
And, as I’ve learned, if I didn’t start exercising those spending muscles a bit now there’s a good chance I couldn’t bring myself to live it up in retirement.
I decided it would be better to introduce some lifestyle creep now to make sure we could maximize our life enjoyment today, tomorrow, and throughout retirement.
So, we’re paying ourselves more while still investing 15% of our business income. That allows us to meet our desired spending needs on the personal side while also investing 20% of our personal income to catch-up on our TFSA contributions.
It’s a nice balance, and it’s freeing to know that we can enjoy life to the fullest today and still have a secure retirement.
Don’t get me wrong, I’m still a saver at heart. But tomorrow is never promised. My wife has MS. Our kids are getting older. If we have the chance, we’re going to take the trip, attend the concert, eat at the restaurant, splurge on the nice Airbnb, and still try to max out our TFSAs.
The trade-off? We might take 15 years to pay off our mortgage instead of 10. We’ll have a smaller corporate investing account balance and may have to work part-time as a way to ease into retirement. That’s okay, I might have done that anyway!
Perhaps no book has influenced people’s behaviour when it comes to money and lifestyle creep more than Bill Perkins’ Die With Zero.
And while I’d take the advice of a multi-multi-millionaire energy trader with a grain of salt, the concepts of building memory dividends and maximizing life enjoyment will truly cause you to reflect on what really matters, and whether it’s about enjoying life or watching numbers go up on a spreadsheet.
To summarize, we’ve had some intentional lifestyle creep over the past two years and I don’t regret it one bit. We’re still saving appropriately for retirement with a good system in place – and this trajectory strikes a better balance between living for today and saving for the future.
Promo of the Week:
There are still a few days left to take advantage of Wealthsimple’s 1% transfer bonus. I’ve spoken with several readers and clients who have already taken advantage. One deposited $500,000 from the sale of a rental property and secured a $5,000 cash back bonus. Another transferred $2M(!) from Questrade to secure a $20,000 cash back bonus.
Note that the bonus is paid into a Wealthsimple Cash account (their high interest savings account) in 12 monthly instalments to encourage you to keep your funds at Wealthsimple. Still, it’s an incredibly lucrative offer if you’re in the mood to move your savings and/or investments.
Open your Wealthsimple account today, and download the mobile app. Login and in the upper righthand corner you’ll see a picture of a present. Click on that and you can enter my referral code: FWWPDW to tell them Robb sent you and we’ll each get another $25.
Then, register before October 1st and you’ll have 30 days to transfer or deposit a minimum of $15,000 to get a 1% cash back matching bonus.
It’s that easy!
Weekend Reading:
Short and sweet this week.
A Wealth of Common Sense blogger Ben Carlson compares this bull market run against the epic bull market of the 80s and 90s. Pretty close!
Here’s how to move Locked-In Retirement Account (LIRA) funds to another institution without tax consequences.
Mark Walhout answers the top 10 probate and estate planning questions in Canada:
Here’s a surprising fact. The most common outcome from buying a stock is that you lose all your money:
“The stock market is NOT a rising tide lifts all ships story. It is a haystack with unknown, but required, needles story. So buy the damn haystack.”
How will Canada’s new mortgage rules affect your plans to buy a home? Erica Alini and Rachelle Younglai answer your questions.
In many ways, index funds have effectively “solved” investing. Yet many people continue to delegate their investment management and financial decision-making to financial advisors. PWL Capital’s Ben Felix answers the question of why you’d hire a financial advisor:
You might be surprised to hear that if something happened to me, my wife has been instructed to hand everything over to PWL Capital. That’s how much I believe in the good work that group is doing.
Finally, Shawna Ripari couldn’t resist a spending spree, so she tried a no-buy challenge. Here’s what she learned.
Have a great weekend, everyone!
Hi Robb, Great to hear that you’ve struck a balance between saving and spending that works for you. It can be quite challenging and we have struggled with it ourselves, especially when trying to incorporate savings for a hopefully close retirement period. As you noted, it is all about choices, and I found that having a budget is a big help for that. The budget doesn’t restrict me from spending, it just helps me understand my options…if I want to spend on something, I am just forced to acknowledge the choice that I won’t do something else. That could mean a choice to enjoy a trip and not save a specific amount and that’s okay.
I loved the book Die With Zero for the most part and it did help with this thinking. One of the other tactics I took from the book was to provide an inheritance to kids in advance, when they are younger and need the money, rather than when you pass away and they are in better shape financially (we hope!). Just make sure they know that’s what it is so they don’t expect an additional big pot of money later! LOL
Thanks for sharing your personal stories with your readers!
Hi Jeff, thanks for your comment. I totally agree about the budget. I call it a spending plan for the year, and it’s incredibly freeing to decide where your money gets spent.
I also love that you’re incorporating a “give while you live” approach to inheritances. I think a $50k or $100k gift at age 30 is far more impactful than receiving $500k or $1M at age 65.
Obviously that needs to be done carefully so that your own retirement is secure and longevity protected, but if you can afford to give early then I say go for it!
Great read Robb, I resonate so much with what you’ve laid out here. There is definitely a balancing act for living for today while working towards future goals. The concept of time buckets also was really poignant for me in Die With Zero. Pushing off activities until later is a risk, your health and body as it may be today is not what you may be dealing with down the road, unfortunately I see this with loved ones entering retirement with sub-par health suddenly being diagnosed with heavy life altering illness. The future is not guaranteed, focusing on what you value and enjoy and giving yourself the ability to act on those things is a key to the good life I feel. Also I found it really key to compare my age vs my child’s and think about what I’d like to be able to do within certain age ranges. I’d much rather invest in creating memories with my son now than pushing them down the road, that may mean the best Western in the budget today, but we’re having the adventure now, while still creating space for future grander adventures!
Thanks Magda! I like the concept of time buckets as well. We’re two years into a 10-year plan with our new house and travel plans while the kids finish up middle and high school.
Our next 10-year plan is still up in the air but we’re completely open to moving (even to the UK!) to follow the kids or just to go somewhere new.
Very aware of the risks of putting things off, especially with my wife’s health. She’s in great shape, but a recent relapse was definitely a wake-up call that we need to keep living life for today.
I’m sorry to hear of her relapse, health truly is wealth, I hope this is a minor overall. I also like how you’re breaking things into 10 year plans. I suppose I am too, but wasn’t labeling it that, more planning for things until my son is 18, which coincidentally is a 10 year window. Love that you’re both embracing the idea of living abroad later on!
Good article. I retired at age 60 (3 years ago) with a company pension and would still say I’m guilty of likely “spending less than perhaps I should”. But my brain isn’t wired that way. I do allot money each year to a large property project / upgrade and go on an $8-$10K trip, but am otherwise trying to ensure the rest is spent mostly on necessities. I know that my 15 year-old Corolla will need to be replaced at some point (once I get a better sense of direction of the future of transportation).
I need that security of withstanding any potential black swan – and there are plenty of things out there at the moment that can potentially go wrong. Dividend-payers, commodity stocks, International and gold ETF’s, bullion, and taking CPP at age 70 are part of my personal plan….your mileage may vary.
I have enough. I don’t need to spend it all. I hope not to die with zero – that’s just not me. I don’t care if plenty goes to someone else. I need to sleep at night, and this is the best way for me, personally, to do that.
By the way, thanks for the Wealthsimple recommendation last week. I am transferring 3/4 of my TD Direct account over. There are some things for investors to be aware of though. Wealthsimple does not support dual-listed stocks (NTR pays dividends in USD, so I have it in my USD account at TD). Also, my understanding is that an RESP’s would get transferred over as cash. So for me, that one also stays. They do support most, but not all ETF’s. Thanks again.
Hi James, thanks for this. It sounds like you’ve figured out what works for you. Many of my clients feel the same – they have enough and don’t feel the need to spend more extravagantly. Comfort and security might be your most important money dials, and that’s okay.
Thanks for sharing about Wealthsimple. I’m a simple one ETF guy so it’s helpful to hear from people who are trying to move some of their more “exotic” investments that may not be compatible.
As for RESPs, this account type doesn’t exist yet on the self-directed side so they were likely trying to get you to open a managed (robo) RESP, in which case they could not bring over your existing funds in kind because they use their own model portfolio of ETFs.
I’ve left my kids’ RESP at TDDI as well while I wait for Wealthsimple to add RESPs to their self-directed platform.
Hi Robb, in a similar vein there is inflation creep. For example hotel prices have significantly gone up and it has taken awhile to get used to the norm of roughly double what we are used to paying for the same thing just a few years ago so we would put off over night holidays. Hotel prices are not coming down, however we are slowly adjusting our thinking that we can afford it, retirement savings are in hand, and we are not getting younger and doing holidays with hotel stays again. The spending mindset (what can be afforded, within budget) trajectory should be adjusted on approach to retirement, our budget in retirement is on track to increase, but if not ready to spend it, that does not contribute to quality of life. It is okay to pull some of that forward and smooth out what otherwise may be step jump in available budget when retirement starts. It is hard to spend more than you used to, even though can easily afford.
Hi Greg, that’s a great point – travel in general has become much more expensive. Trust me, as someone who used to work for a national hotel group I used to get employee rates of $39 a night a friends and family rates of $79 a night. It kills me to pay $250+ for a hotel room.
As a family with school aged children we’re also restricted to traveling during peak seasons for the most part (February in Hawaii or Mexico, Easter anywhere, summer anywhere).
We’re more than willing to travel in shoulder seasons to stretch our budget a bit further when we’re able to do so.
Hey Robb,
Can you elaborate on this point?
You might be surprised to hear that if something happened to me, my wife has been instructed to hand everything over to PWL Capital. That’s how much I believe in the good work that group is doing.
Does PWL do investing?
I’m thinking of how to structure things in case something happened to me (right now the instruction is “listen to Robb” ).
Sorry to hear your wife has MS. Didn’t know that.
And thanks for the Wealthsimple referral – it’s great!
Hi Ravi, yes PWL is a full service advisory firm so they handle your investments and offer financial planning advice. Fees are super reasonable, they invest in evidence-based strategies using Dimensional Funds, and I’d argue they’re at the forefront when it comes to financial planning and helping clients find and fund a good life.
A lot of my clients have an “in case I die” file and one of the first instructions would be to reach out to me or another advice-only planner to get a read on the situation and advise what to do. That doesn’t mean they’ll continue to DIY like their more involved spouse did, but I can steer them towards the better full service advisors if that’s in their best interest.
My wife is smart enough to know what she doesn’t know, and isn’t terribly interested in the DIY side of finance, so PWL would be an excellent place for her to turn.
Hey Robb
Thinking about transferring assets to Wealthsimple to obtain the 1%. Curious about the time funds will not be invested during the transfer process? Hate to miss a day like Thursday where XEF and XEX were up over 2%. Perhaps a transfer in kind would keep the # of units whole so it doesn’t matter? I’ll ask WS advisor this week.
Hi Greg, just do an in-kind transfer and you won’t miss a beat. I moved my LIRA (invested in VEQT) in-kind to Wealthsimple back in February. It took three business days to move over and the funds stayed invested the entire time.
https://www.ciro.ca/office-investor/investing-basics/transferring-accounts-between-firms
After reading the title, I was pleasantly surprised to see that this article was about embracing lifestyle creep rather than avoiding it. Well said, Robb!
Hi Mark, embracing lifestyle creep would’ve been a better title!
I really like the idea of gifting to my 3 married adult children in their 30,s when they could use the money,rather than letting them inherit it when they are 65.
The one mental block that is stopping me from doing this is the 50% divorce rate. Hypothetically if I was to give each child $200,000 now and one of the kids divorce in 2 years from now and their spouse being able to walk away with half of the gifted $200,000.
Any advise on how to overcome this fear of mine.
PS -Very sorry to hear that your wife has MS, our thoughts and prayers are with you and your family
9pm on the 30th and they have locked the Wealthsimple form…