Talking FACS
Host: Dr. Jennifer Hunter, Assistant Director for Family and Consumer Sciences Extension, University of Kentucky
Co-host: Mindy McCulley, Extension Specialist for Instructional Support
Episode 21
0:03 Welcome to Talking FACS; what you need to know about family, food, finance and fitness. Hosted by the University of Kentucky Family and Consumer Sciences Extension Program, our educators share research knowledge with individuals, families and communities to improve quality of life.
0:20 Dr. Jennifer Hunter: Hello and welcome back to talking FACS. This is your host, Dr. Jennifer Hunter, Assistant Director for Family Consumer Sciences Extension at the University of Kentucky College of Agriculture Food and Environment.
Today is one of those days where we're going to flip flop spots and I have asked Mindy McCulley, our extension specialist for instructional support to join us as we cover one of the financial topics of warding off lifestyle creep. Welcome Mindy.
0:47 Mindy McCulley: Hi Jennifer. I'm so glad to be here.
0:49 Dr. Jennifer Hunter: I always think this is fun when I get to talk about my subject matter. Now, I enjoy all the topics and I actually learn so much when our specialists share, but I think it's also kind of fun too… You know how much I love to talk about finance and money. And so, I enjoy it when we kind of switch spots for the day and you ask me the hard questions and I get I get to share as well.
1:16 Mindy McCulley: And I'm loving this topic. I think lifestyle creep is something that we probably think about might affect millennials or even a little bit beyond millennials, but I can also see that this could be an issue for people who are even in retirement. So, tell us what is lifestyle creep?
1:32 Dr. Jennifer Hunter: Right. So, that's a good question. Just exactly what is lifestyle creep? And it's kind of one of those, I guess, trendy term that has maybe popped up recently, but it is something that people have dealt with throughout generations.
And essentially, what it is is that when you earn additional income, maybe you get a pay raise at work or you pick up a second job, whatever it may be that you have more income coming into the household, that you find a way to expand your lifestyle to match that income.
So, in an ideal world, when we get a raise, we would love to take that extra income and put towards paying down debt or saving for specific financial goals. But in reality, lots of us just tend to spend it or just spend more.
2:18 Mindy McCulley: Yes. And that is an issue that you see happening all the time in and probably, I notice it myself. You know, I'll go spend more money if I have more money in my pocket. So, it's a really good idea not to have that money in my pocket.
2:31 Dr. Jennifer Hunter: Exactly. It's one of those things that my husband and I talk about a lot at home that when especially our oldest one was young, that you know, we were still very very new in our careers, that our earning potential, we had not achieved it yet and somehow we made it. We made it, we were able to pay daycare expenses.
And now that we've been fortunate enough to progress in our career on and the kids are out of daycare, which takes off a huge, huge line item on the budget, but I don't really know that we save that much more. It's just because our lifestyle or the standard of living has expanded as we've grown.
3:10 Mindy McCulley: Right. And so, we see that happening in all kinds of situations. So, what happens when you're fresh out of college and you get to get your first job? You're doing okay, but then you get a promotion. So, what do we see happening then?
3:26 Dr. Jennifer Hunter: Well, what we would like to see happen, so if we talk about the ideal, is that we would like for you to take a look at the additional income that you're bringing home, your take home income, and really and truly develop a plan for those dollars. So, to spend them smartly.
And again, that could be paying down debt, it could be making an extra car payment per year, making an extra house payment per year, making additional payments on student loan debt, those things that long term are going to help you generate more wealth.
So, as you pay off those debts, then that's additional dollars that you can put in toward savings. So, that's really what you would ideally like to do.
Unfortunately probably, and we all do this, regardless of probably what life stage we are in our career, is we kind of say, “Oh, I have a little bit extra money. I could maybe buy a nicer car because I'd be able to afford a little bit more on the payment every month” or “Hey, I got a new promotion. Maybe I need a new wardrobe to go with that new promotion” or even just feeling like when there's not as much, when there was a lot of pressure on your checking account, when there's a lot of pressure to make it paycheck to paycheck, you're very mindful of where all those dollars go, when there's not as much pressure, maybe we’re more likely to stop at a coffee shop and pick up a coffee or more likely to go through a drive thru for breakfast as opposed to really being as strict as we were before.
4:53 Mindy McCulley: All right. So, how can we avoid the creep?
4:57 Dr. Jennifer Hunter: Okay. So, I'm going to use the “B-word”. So, make a budget. You know that that's kind of one of our basic financial recommendations all the time is that we should all develop a budget.
Having a written budget is much better than just having a mental budget and really and truly kind of right down, spend every dollar on paper before you spend it in person.
5:16 Mindy McCulley: Right.
5:17 Dr. Jennifer Hunter: So, have a plan for where those dollars are going to go. And it's also a good idea to keep a spending diary, because we all stand kind of subconsciously or unconsciously I guess is probably the better term and that's kind of the, “Hey, I stopped to get gas and I also went in and got a Coke or a coffee or a candy bar” probably all things that are unhealthy for our diet too. But just kind of this whole idea of, “Hey, I had a hundred dollars in my pocket on Monday and by Friday I'm like, ‘Where did that money go? What happened to it?’”
And so, if you track those expenses, you don't have to do it all the time, but if you do it for seven days and really get an idea of where your money's going, it can kind of help you identify if you're having some of these lifestyle creep situations.
5:57 Mindy McCulley: Or the leaks that tend to dribble right out of your pocket.
6:01 Dr. Jennifer Hunter: Exactly, and when we have more money to play with, those leaks can sometimes become greater.
6:06 Mindy McCulley: Right. So, one of the things that I have encouraged my children to do is to plan for big expenses. And that can help to avoid some of this lifestyle creep.
6:18 Dr. Jennifer Hunter: Right. And building that into the budget. So, identifying what those financial goals are. I know that we were talking recently that maybe one of your sons has buying a house on the horizon that he really needs to think about. And I think maybe one of the justifications he used was he said, “Well, I have a steady job now and I know what my income is going to be and so I can plan ahead for that”.
But it's really kind of writing it down on paper, making certain that it does fit within the budget and he understands how much more it's going to be per month besides just the rent that he's got in terms of insurance and taxes, that he really kind of gets the full grasp of what moving from a rental to buying a house really is.
6:56 Mindy McCulley: Exactly, all of those little things add up and you don’t add them…
7:01 Dr. Jennifer Hunter: If you play the podcast at home for them, I'm certain he's going to be thrilled that we're analyzing his home purchase decision.
7:06 Mindy McCulley: Yes, indeed.
7:07 Dr. Jennifer Hunter: Another great tip and again this is true, just a good, sound basic financial tip, is the idea of paying yourself first.
7:15 Mindy McCulley: Yes.
7:16 Dr. Jennifer Hunter: And this is one that we implemented very early on in our marriage and has held true for quite some time as a way to help meet our savings goals. That we as consumers, and there's a tremendous amount of research about this, that we tend to learn to live off what is in our checking account.
7:30 Mindy McCulley: Right.
7:31 Dr. Jennifer Hunter: And the idea of paying yourself first is that immediately on every payday, we take a certain amount of money and put it into savings.
7:38 Mindy McCulley: Right.
7:39 Dr. Jennifer Hunter: And so therefore, when we're looking at our checking account, when maybe we go and take out cash or for someone that does debit, whatever it may be, when you're kind of seeing that balance, looking at the app on your phone, you're not seeing those dollars that you have for savings.
And I think sometimes consumers think at the beginning of every month, “We're going to do really good this month. We're going to eat at home. We're not going to spend extra on entertainment and that everything we have left at the end of the month, we’ll put into savings”.
Unfortunately, then life happens that month, and we get tired, and there’s soccer practice, and there's dance practice, and there's all these other demands and everything and we’re like, “Well, we’ve got a little extra money. We’ll just go out and eat”.
8:15 Mindy McCulley: Right.
8:16 Dr. Jennifer Hunter: But if we pay yourself first, if we take it out of the checking account, putting it over into savings, lots of banks will automate this for you, lots of employers will allow you to actually direct deposit, they'll allow you to split your paycheck so that it can't even go to a different bank, which is actually what we do, but we're a little bit extreme, it goes to a different bank that we can't even see and I don't have the app on my phone.
8:37 Mindy McCulley: Yes.
8:38 Dr. Jennifer Hunter: That type of thing. But paying yourself first is a great way that when you do get a raise, you increase that pay-yourself first.
8:45 Mindy McCulley: Exactly.
8:46 Dr. Jennifer Hunter: And so, you move that savings goal up. And it's okay if you spend some of what it is that your raise is, but you're not spending it all.
8:54 Mindy McCulley: Exactly. And people who are earning overtime pay or getting commissions might even want to think about not including that figure in their regular budget. You know, go ahead and put that in savings so that you're not learning to live off of something that is not guaranteed.
9:09 Dr. Jennifer Hunter: Exactly. And I think that that's a great point that we spent a lot of time talking about what might be guaranteed, reoccurring income. But if it's not a guaranteed recurring income, you definitely want to make certain that you're making smart decisions with how those dollars are spent.
9:23 Mindy McCulley: And I guess we should celebrate having this new job and getting this new income; right? But how should we celebrate?
9:31 Dr. Jennifer Hunter: How should we? We should celebrate smart.
9:32 Mindy McCulley: Okay.
9:33 Dr. Jennifer Hunter: And I think sometimes people might think that I'm a downer because I'm saying, “Save, save, save” and that's true. We do want you to save, we do want you to pay down debt, we do want you to work towards making good financial decisions and working toward savings goals, but it's okay to celebrate too. That we work hard and that if you do receive a promotion or somehow generate additional income, it's okay to celebrate that, it's just to be mindful about how we're celebrating it.
10:01 Mindy McCulley: Exactly.
10:02 Dr. Jennifer Hunter: So, maybe there is a splurge in the future and therefore make a plan for that splurge, do a budget for your splurge, set some financial goals towards the splurge, but make certain that we keep it within reason. If it's a vacation to celebrate with the family, because this is something that maybe you've achieved personally at work, but the whole family has sacrificed to get there, well, just do something that's within reason. Don't do something that you're going to have to put on credit and then…
10:30 Mindy McCulley: Pay for it for the rest of your life.
10:31 Dr. Jennifer Hunter: Exactly. You're paying for months into the future. I always think about the beach, and I'm not going to get off topic here, but I always think about the beach vacation that, you know, that's paid for in the summer on credit and then you're still paying for it during the winter holidays, but that's really hard and so we don’t want to do that. So, we want to celebrate smart.
10:50 Mindy McCulley: That's it. I think those are great tips for enjoying the new found money, but also making the best of what you have already.
11:00 Dr. Jennifer Hunter: And so, if just as consumers, we can just remember to be aware of the whole idea of lifestyle creep, be cognizant of what's going on around you and how you're spending your money, that will help you make smart money decisions in the future.
11:14 Mindy McCulley: I think these are great tips that people can use at any age. So, I think that they will enjoy hearing about the lifestyle creep and how to avoid it.
11:22 Dr. Jennifer Hunter: Great. Well, thanks so much for joining me today and allowing us to talk a little personal finance. I always think it's fun.
11:29 Mindy McCulley: Alright, great.
11:33 Thank you for listening to Talking FACS. We deliver programs focusing on nutrition, health, resource management, family development and civic engagement. If you enjoy today's podcast, have a question or a show topic idea, leave a ‘Like’ and comment on Facebook @UKFCSExt. Visit us online at fcs.uky.edu or contact your local extension agent for Family and Consumer Sciences. We build strong families. It starts with us.
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