“Lifestyle inflation increases your expenses at the rate your income grows…if left unchecked, lifestyle inflation can prevent you from reaching your financial goals. It keeps you in a cycle, you can’t chase your dreams because you have to keep working to pay your bills,” he writes Jason Vitug in his 2016 best-selling title “personal finance for millennials”: “You Only Live Once: The Path to Financial Well-Being and a Meaningful Life.”
The well-known phenomenon is also known as “lifestyle creep” and has been described in other books and articles, adding to the ever-expanding canon of relatively readily available personal finance advice—be it ads and billboards urging us to sign up for some investment that will secure a better future for ourselves and our families; financial savvy talking heads sharing their expertise on TV screens; or the numerous websites and Twitter accounts sharing tips on how to manage money and live within our means.
Yet for many of us who are gainfully employed and likely in a position to put some of this ubiquitous financial wisdom into practice, it’s still much harder to save than to compulsively buy the latest and greatest version of whatever interests us, whether it’s a pair of designer sneakers, a “pro” smartphone with a gazillion pixels that promises to help us capture cinema-worthy Instagram stories, or a smartwatch that tracks how many hours we sleep and then monitors and quantifies every little bodily function during our waking hours. hours.
And it’s not just the big purchases that contribute to our monthly earnings and potential savings; there are also subscriptions and other conveniences of life that we buy when we feel we have extra income.
That said, critics might argue that it is an oversimplification to blame the ubiquity of hand-to-mouth living among the employed on personal choice in the form of avoidable lifestyle inflation, and might prefer point to many documented shortcomings economic systems that benefit from underpaid labor to produce the very items that lead to increased “waste” spending.
Zoe Merson-Davies is not one of those naysayers. She is a certified financial planner with nearly three decades of experience and an independent financial coach. He strongly believes that we can all make such choices that can help us “build wealth”.
Personal finance is an emotional journey
“My many life experiences have taught me so much that it helps me in my coaching. I am married, divorced, have bought and sold real estate. I had terrible illnesses and had to claim insurance policies, I was broke, I was in debt, I got out of debt, I built wealth,” says Merson-Davies.
In addition to her profession and formal qualifications, she says it is these life experiences that give her insight into the many pitfalls when it comes to handling personal finances.
“There’s a lot of emotional stuff about money and the relationship with it. The first question you need to ask yourself is, ‘Why do you want to buy these things?’
“If you were earning R10 000 and you were living well and were able to cover your expenses and then suddenly you’re earning R15 000, you’d better live within your R10 000 budget and save the difference,” Merson says. -Davies.
Financial independence can look different to different people and we can even describe it with different words: comfortable, rich, wealthy, etc. The financial coach is clear about the preferred words: “wealthy” and “wealthy”. the goal to work towards and as descriptors of her current situation.
She is also clear on what financial success is not; especially that they are not external symbols of success.
“We could see and believe that people running around. [designer sneakers] and having a four bedroom house and driving a luxury car are rich. In fact, they are probably up to their ears in debt.
“Being rich isn’t visual – it’s in your savings account, in your bank account… it’s what you pay for the day you’re no longer earning,” says Merson-Davies.
Therefore, he believes that it is first and foremost important for people to unpack their beliefs about money, wealth and status symbols, as this will ultimately guide their decision making.
And one particularly problematic belief he returns to and mentions often is the conflation of financial success with external, material symbols of success:
“My friends, my partner and my family care about who I am as an individual, not the shoes I wear. If your friends are based on what shoes you wear and what car you drive, what is the depth and value of your friendship?
One method he recommends to guard against unnecessary lifestyle inflation through impulse purchases is to “face reality.” You might want an Apple Watch that costs north of R10,000 and you might be convinced that its many health features will help you exercise more, “but will it really? Will it lead to more activity than another, much cheaper fitness tracker?”
Merson-Davies asks: “Do you need to upgrade to the latest top-of-the-line phone? Did you do all the things you thought you would with your previous expensive phone upgrade?
“Life is about making decisions. And if you want to build wealth, there is no way around it – you have to save your money and let it grow,” he adds.
Green light, now begin
This means that the process of identifying and working with these beliefs does not mean that one cannot begin working on their path to financial independence.
In fact, he recommends starting saving right away by putting money, no matter how little, into an account like a 32-day account, while continuing to educate yourself about money.
“Even if it’s R50 or R100, we’re saving.” Then start learning… start empowering yourself and building an understanding of how money works so you can make different decisions with your money,” she says.
Understandably, the world and language around money can be quite intimidating, and Merson-Davies stresses that, as with other life skills, it’s important to approach it as a learning journey.
“Many people who build wealth don’t immediately know how to make money. They just know they have to save, and then they learn through life – they ask, they get involved, “What’s an ETF? What is RA? What is a Tax Free Savings Account?’
“You’ll never really understand money unless you learn about it and empower yourself to make bigger and better decisions. “After 30 years in finance, I’m still learning and building my emotional maturity around money,” says Merson-Davies.
Just do it!
Choosing to opt out of buying the latest and greatest may sound easier said than done, but it’s no sugarcoat for Merson-Davies:
“When you start working, you become an adult. So grow up and be an adult!”
As she sees it, going into huge debt for fancy cars and clothes is a form of emotional immaturity, and she readily admits that she too has fallen into the trap of approaching financial decisions with a degree of emotional immaturity.
To get the help she felt she needed, she sought counseling and continues to “work with people who are rational about money … people who are emotionally mature, people who I trust completely to bring me back down to earth, to bring me they led to a rational and less emotional decision.
“I know I’m emotional, so I stop and admit that I’m emotional about the decision and reach out to these people and ask them to help me. It’s also about allowing yourself to be vulnerable,” she explains
The eighth wonder of the world and money babies
“The next step is to understand folding; it’s the eighth wonder of the world,” says Merson-Davies, referring to compound interest.
Simply explained, compound interest is a combination of interest calculated on initial savings and interest on interest.
“Imagine a snowball – the more you roll it in the snow, the bigger it gets. Understand that money makes money,” he emphasizes.
“Work does not equal money. I am currently working and earning. But I also have invested money that is coming back. I don’t work for that money anymore, but the kids make that money,” she says, adding that while she hasn’t had a raise in the past three years, partly due to personal health issues, she is now richer. that at some point in her life she was because of the money saved and the compound interest on it.
Merson-Davies says: “I wear clothes I’ve owned for 10 to 20 years. I drive a tiny little car. But I save almost 80% of my income.”
A few months ago we published article about what to do when you leave things too late. Lindsay Frost, an advisor interviewed for this article, acknowledges the downside of missing out on a significant amount of compound interest by not saving and investing earlier in life.
But she was very clear that no matter how late, saving is always a good idea, and even those with single digits left for retirement will still benefit from saving — much more than if they didn’t. Merson-Davies shares this view.
“Forgive yourself. It’s okay, you may have 10 years or less until retirement. Go ahead and save and see what happens. You’ll still have something rather than nothing. If you keep living in fear and don’t take action, you’ll never you don’t move forward.
“Every rand saved counts!” DM/ML