Why Making More Money Makes You Broke

I think it's funny to hear people talk about lifestyle creep and they always think, well, if I just make more money, it's going to be okay. That actually makes it worse. It's the silent killer of your financial future. This is one of those traps that's smart and successful people walk right into it.

Isn't there more important parts to financial planning or wealth management? Everyone gets affected by lifestyle. The way you want to live, how you travel, where you want to travel, where you want to live, how you want to live, what kind of home you want, cars, you're rich on paper, broke in real life.

Seems like it's a neverending cycle. How do people get out? I think it's really a behavioral thing. And if you stay in that direction long enough, then you might reach the point of no return.

You've climbed the ladder. You're making more money than you've ever made. And yet your savings are weak, you're stressed beyond imagination, and your wealth, it's stalled. Today, we're revealing why. We're talking about lifestyle creep, and it's the silent killer of your financial future. This is one of those traps that's smart and successful people walk right into it.

Phil, I think most people believe that if I just make more, everything will be okay. My problems will go away. But I think what you're saying is that's not necessarily the case. So what is it that is keeping these people broke?

Yeah. I think it's funny to hear people talk about lifestyle creep and they always think, well, if I just make more money, it's going to be okay. And we're going to dig into that for sure.

Yeah.

But unfortunately that's not what fixes it. That actually makes it worse, and again we'll talk about that. But really, Spell, it gets down to the very essence is our first element. And so we do everything based on 10 elements of wealth management that we created years ago. And right, those 10 elements, the first one is lifestyle.

Mhm.

And if people don't get their lifestyle right, then everything else is affected. It affects everything. And so, if you think about the elements, we have lifestyle followed by, and we'll talk about all of these throughout our videos, but cash flow, risk management is in there.

Yep. Big one.

Investment oversight, tax strategies, retirement income.

Yeah.

Estate planning, philanthropy, family governance, and business planning. Now, for some of you, business planning might not be relevant if you don't own a business, but business planning for most people, that's a really important thing because in America, the biggest part of employment is created through small employers. So, we have a lot of familyowned or small businesses in this country. So business planning is a big part of our elements.

But back on point with lifestyle, is that where it all starts? Lifestyle, is that where it all starts?

Yeah, for sure. Because think about this. Everything about lifestyle, which is always built around emotion or built from emotion. Everything we do, chances are it costs money.

Mhm.

And so if we don't really understand what we want our lifestyle to look like, then everything else, all the other elements get affected. And most people, unfortunately, they don't plan their lifestyle. They let their income plan the lifestyle.

Yeah.

And so that's partly why in our elements, our 10 elements of wealth management that we created years ago, lifestyle is number one.

Yep.

People say, "Well, gosh, isn't there more important parts to financial planning or wealth management?" Well, there's important parts. All of them are important, but everyone gets affected by lifestyle. The way you want to live, how you travel, where you want to travel, where you want to live, how you want to live, what kind of home you want, cars, yeah, savings, all these things matter. And so lifestyle, I believe, is at the, that's at the top. And everybody has to recognize if you don't get your lifestyle laid out right, then the lifestyle creep that you talk about is going to kick in and it's going to change everything and probably cause you to fail.

So, Spell, I think three things that I can give everybody is, and this is in my opinion universal. This is everyone. So the first measure of if you've got lifestyle in control or under control is how much you're saving.

Yeah.

Bare minimum 15%. Whatever you're making, you ought to be saving 15%. If you're not, you've run the math. We've done the crunching of numbers for years. And if you're not saving 15%, chances are you're going to be upset when you reach retirement.

Yeah.

You're certainly going to get a letdown because you probably won't be able to live. So, that's red flag number one.

That's red flag number one. Got it.

Number two is you feel like you're getting rich. Maybe you have assets. Maybe you see your net worth going up, but you're always wondering when is the next check going to show up. When am I going to get that next paycheck because I really need it? Yeah, that's not a good sign.

Red flag number two.

That's a big red flag. The other one is people just don't write...

Yeah.

...enough about what they want their life to look like. Spell, we use something here that's, we refer to it as blueprinting the client.

That's right.

And that blueprint really helps them understand who they are, what life is all about for them, goals, objectives, etc. But even if you didn't go through that, people that are not willing to write what their life is supposed to look like, the things that are really meaningful to them, yeah, then their income, the more they get, the more they're going to spend because they really don't have everything laid out in such a way that they can follow it and refer to it to know that they're on track.

So if you didn't get anything from today's show, take those three points and begin to live by those. And if you employ those or put those into practice, you'll be better.

So you mentioned that those three points are universal and I agree with you, and I would imagine that those are resonating with our listeners, but let's unpack why this happens. So we know that high earners who are stuck in this situation oftentimes have a hard time getting out. It seems like it's a neverending cycle. How do people get out?

Well, some people never get out of it.

Yeah.

You've been in this business long enough to know that occasionally we run across people who, that there's no hope for them because they're not going to change. I hope that no one listening to our show is in that boat. I hope everyone has the ability, and I think everyone has the ability to change. They just need the willingness to change.

But I think how you break that cycle, Spell, is first you have to recognize that you want to achieve something as it relates to your financial goals. So whatever that is, and then you have to put that in writing so you understand where you are in relation to that, and then you start taking steps to not just break the cycle, but you start taking steps to get you towards where it is you really want to go. So it is a cycle, but it's also a cycle that can be broken.

Yeah. Yeah. So what is lifestyle creep, Phil? It's, I know, and maybe the viewers could use a little bit of schooling on. All right, Phil, you just said that here are the three red flags. I'm still not entirely sure that I know what you're talking about. So, what is the silent killer of a financial household?

Yeah. Lifestyle creep is, for lack of a better term, I'll at least go back, and some of our listeners, I feel sure they've all heard it.

Yeah.

But Keeping Up with the Joneses is one of the oldest versions, if you will, of, or one of the oldest, it's sort of cliche now, but one of the oldest ways that we can think about what lifestyle creep might have looked like, right? And even that is not necessarily lifestyle creep. That's just trying to spend more to keep up with someone else, even when you don't have it.

Mhm.

When we talk about lifestyle creep, we're really relating it to or referring to income rising. And as your income rises, your lifestyle goes with it. And that goes back to not planning what your lifestyle is supposed to look like, rather letting your income dictate what your lifestyle looks like.

But when people get a raise, I think about one of our clients recently that they're making $400,000 a year. It's good money. It's really good money.

Yeah.

We have clients that cover the spectrum of income, right? But 400 is a good income.

Yes, it is.

In fact, I would bet that listeners right now are thinking, "Gosh, I wish I made 400."

Probably.

So, and then there's probably some saying, "Oh, yeah. I remember when I made 400, but now I'm way past that."

Mhm.

So, they're all over the board, right? And this is effective no matter where you are, what I'm about to tell you. But this doctor making 400 a year could not figure out why he and his family were not getting ahead. Student debt, hundreds of thousands of dollars, family always getting what they wanted, enjoying all of the benefits that he could afford them.

Yeah.

And life's good.

Yeah.

Beautiful home, cars for the kids that have reached driving age. Never a no, it seemed. And so that's lifestyle creep. The more money he made, their lifestyle every year. I can look in our system as we were planning for them and you could just see it. It was just rising.

Yep.

That's lifestyle creep.

Yeah.

And so I think the challenge for most people, Spell, is you can have lots of income but be broke. You can earn 400, 500, a million a year and be broke. So you're rich on paper, broke in real life. You look great on paper.

Yeah.

But if every time you get more money, you start buying more stuff. And here's the worst one. This is the worst of all, Spell, and you've probably had this with client engagements. I've got this bonus. It's coming in December.

Y.

It's going to be 60,000 or a 100,000.

Y.

And so we're going to go ahead and build this pool that we want. How many times have I heard people talk about that, and it drives me nuts. The money's not even here, right? They're hoping in December that this bonus that they're, that's been forecasted, and they assume they're going to get it, and they go ahead and drop 150,000 for the pool by borrowing the money on the old home equity line of credit. Right? So they go get the HELOC and they say, "But I'm going to pay it off when December comes and I get that bonus."

And what happens? Bonus shows up. They don't pay off the HELOC because they're comfortable making the payment. And before you know it, the 60 or $150,000 bonus is being spent. Gone. That is how lifestyle creep exacerbates an already tough enough situation, which is trying to build wealth.

Yeah.

And so you start doing those things and it can really make the situation get really bad really fast.

You mentioned something a second ago. It was a third red flag that you mentioned, that if you don't write what it is that you're trying to achieve, a lot of times it's out of sight, out of mind. We have conversations all the time with folks that they don't believe us when we call attention to their lifestyle, and we have access to the numbers and they still don't believe it. And it's almost, it's not funny because this is a very serious thing that we're talking about. But sometimes I chuckle inside and I think, well, don't argue with me about what you're spending. You're the one spending it.

Nobody likes to be told that they're spending is too much. And most people think they know what they're spending, right? Until you show it to them.

Right?

So I think this lifestyle creep thing, it also calls in one other component within our elements, and that is thinking about performance, rate of return. And so when people get too far out over their skis with lifestyle creep, first thing they think is, well, I'll just get a better rate of return on all my investments and that'll fix it. That causes another problem. We'll talk about that another show, I'm sure.

For sure. For sure. So, Phil, talk to us about the moment that people realize that they're in trouble. You mentioned something earlier about people waiting for the next check.

Waiting for the next check.

I would imagine that that's probably some of it, but also is it maybe potentially when someone gets a raise and all of a sudden that doesn't eliminate the stress, is that when people realize that they're pretty much in trouble?

Think income, more income, bonuses, that doesn't fix bad behavior, right? So really this problem, it's not just about trying to earn more, or if I get more income that'll fix things, or when that bonus check gets here. If you don't correct the behavior, right, then you just amplify the problem, and the problem will get worse and worse. And the greater your income, the greater the creep. And you can be making all kinds of money, wildly successful.

Sure.

Yet not really have anything saved or not have anything working for you, and we see that all the time. So I don't think that income's going to fix it.

I think it's really a behavioral thing which goes all the way back to writing what your life is supposed to look like, what you really want. If you can do that, and we talk about this in the book that's coming in the next few months, we'll have the 10 Elements of wealth management. And that book will lay all of these things. It lays them out in a really easy to understand way. And I think anyone can read this and say, "Okay, I'm making these mistakes." They don't have to come work with us, right?

But just having some kind of a guide that reminds them, "Oh, I've got to think about that." Or oh, if this really is behavioral or if I get more income, do I really need to let my lifestyle change? Well, there might be some things that you need to do different. Sure. But let's face it, just because you get more income, nothing about your life went down, right? So unless you were just living in almost an impoverished state and now you get some more income and you want to come out of that, that's one thing, right?

But if you're already living in a great home with two or three car garage and you got multiple automobiles, you got a boat, you got all these things. How much more do you need? It's a good question. So either one, you're trying to keep up with the neighbors, you want to look good, or you just don't have a game plan and all the distractions or everything that you see turns into a distraction and you think, "Oh gosh, I'm making more money now. I can afford that. I think I'll get it." And that just breeds more and more and more of this bad behavior.

We'll get right back to today's show, but first I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, it's easy, and it could make a huge difference in your financial future. Now, let's get back to the show.

You're talking about bad behavior and spending. It sounds like lifestyle creep isn't necessarily just about bad behavior or bad spending habits. Sounds like there could be just some general aimlessness going on with folks who are experiencing lifestyle creep or maybe not even they don't understand that they're experiencing it, but they are.

Yeah. Such a good point. Again, you go back to putting your life in order, setting goals for yourself, right? And really understanding who you are and what it is that you want to be, where you want to be in life at a certain point. And it's easy, Spell, to get distracted with new cars or fine watches or a new boat. Maybe you move to the coast and maybe you live in the area where we are in Wilmington, North Carolina and so maybe you want a new boat. All of these things just add more and more cost to your cash flow and so it just weakens the cash flow model.

So I think first and foremost you really have to go back to are you first saving enough? In other words, paying yourself. I think that's just such a good rule. Pay yourself first 15% at a minimum and then understand what life is. Yeah. Do you really understand where you want to go?

And so one of the things that I'll just throw out for our listeners, just thinking about two of our clients who are professionals. These are docs. And these doctors, they are so different. The only thing similar about these two folks is they happen to be in the same profession. Okay? But here's one who watches every dollar that comes in and every dollar that goes out. He's on it. He's almost miserly a little bit. Yeah. He enjoys life, but he's almost a miser. Yeah. Same profession, different person. He needs everything.

So here are these two and they're similar in age. Yeah. And so here's one he loves to have the stuff. Here's one who says, "I'm okay not spending." And he actually gets a kick. He actually gets excited by how much he can save. He gets excited by how little it takes for he and his family to live on. And that is literally an exciting thing for him. That's he loves it now. That's pretty cool.

The net worth. Yeah. Head and shoulders apart. Very different. Here's one in the same age range in their mid-40s. Mid-40s. Several million dollars over here. This guy is barely getting to a million in net worth. So huge difference. Same age, same profession, same types of income. Mhm. But lifestyle creep can move the needle. It's a silent killer in the wrong way.

It is a silent killer and it destroys people. And so sometimes it just comes late in life when they finally realize, gosh, I don't need all this stuff. And really all the stuff creates noise in your life. Distraction. And rarely do you have enough time to enjoy all the stuff. Yeah. Yeah. Yet people buy it for whatever the reason. So writing your life goals, putting all that on paper, man, that's such a great first step.

Phil, let's move into course correction. And so again, you've been at this for the better part of three decades, three decades and a couple years actually. And so you know how to construct a wealth management plan. You also know how to deconstruct a wealth management plan or someone's financial life. Walk us through the deconstruction of a financial plan, if you will, or someone's financial household. How can that assist in one, illuminating lifestyle creep and two, and more importantly, correcting it?

Got to clarify the vision, right? You got to know what you want. Yeah. And so I think with clarity comes better decisions. Yeah. And with clarity comes illuminating the blind spots, right? So if you dig in, you figure them out. You're going to figure it out. You may not want to. Yeah. And sometimes I think that's part of the problem for a lot of people, young families particularly, is they don't want to know, right? Because really deep down they know something's wrong, but they don't want to know. And so they don't dig very much.

But the first one would be just clarifying the vision. Okay? And what I mean by that is really getting serious again about what you want. What does your lifestyle look like? What are your near-term goals, your midterm goals, and your long-term goals? When do you think you want to retire? What lifestyle do you want now? And what do you think you want then? Right? But you must clarify that vision. Otherwise, you don't know how to plan for any of those things. It's true.

You don't really know how to optimize your rate of return. For example, in the book, we'll talk about the CORE or a calculated optimum return. And that calculated optimum return or CORE. If we don't really understand what your vision is, then CORE has no place. Right. It doesn't matter what the return is because if we don't really know what you're going for, we don't know what return is necessary. That's right. And even if we got the best returns, we don't know if it's going to get you to your goal. Right. If you don't have a goal. That's true.

So clarifying the vision. Then I'd say it's auditing your financial decisions. Now, you talk about this a lot in client meetings and that is simply the cash flow, knowing what's coming in, knowing what's going out, allocating everything on that cash flow. So, if it comes in, then it must have a place to go 100%. Whether it's savings, whether it's spending for utilities, whether it's discretionary, non-discretionary, whatever it is, there is a bucket within the cash flow for that income. There has to be. There has to be. And if there's not, then all of a sudden you can think there's extra money when there's really not, right? Or you're just simply shortchanging another goal and you don't realize it. So there needs to be allocation of all the dollars coming in allocated to all the dollars going or all the places where it can go out, right?

Realigning that cash flow with investment strategies. So once you clarify the vision, once you audit all of your financial decisions using that cash flow, then you begin to realign the cash flow and the investment strategy. So, based on the cash flow, now we know what kind of investment strategy you need. Hopefully, you're already saving 15%. That's right. But you might need to save more and this will open your eyes to that. This allows people to see it. So then we can start to figure out what rate of return do we need? How much more savings do we need and it'll begin to come together. Not perfectly clear at this point, but those are the first three things. If you really want to reverse engineer, you can get to a lot if you have those things in place. Got it.

Okay. Why don't you walk us through someone who has course corrected? We have all kinds of client stories that we can call on. Do you have one in particular that you're thinking about now that is a true success? They recognize that lifestyle creep was affecting their financial household. They did something about it and now they're on the back end of it and they're thrilled that they recognized that they had a major problem.

Yeah. What a great question because I'm sure there's lots of them in our family of clients, Spell, but I think of two. Okay. As soon as you started asking that question, two people came to mind. I figured you had some folks in mind. One is a dentist. Okay. The other one is in technology sales. Okay.

He and his family have been clients for many, many years, probably about 10 years now. Mhm. When they came to us, it was really not a good situation. In fact, I didn't want them as a client because their trajectory was not up and things were tough for them. They were dealing with they had several kids, some problematic, just a lot of expense and it seemed like every decision that they made was a bad one. We had to use qualified money. That's how bad it was. They had IRAs, 401ks, and that's the last place you want to go when someone's only 40 years old, 45. Yeah. Big time. Huge tax hits. But we really didn't have a choice. They had no other money, and they couldn't qualify for law. They were in bad shape. They couldn't get a loan.

And so we went in, did some deep digging, figured out what really mattered to them, and the first thing we did was lay out a life plan for them. And we got them engaged to tell us, "What do you want?" And Spell, I won't share all the details but there was a lot of tears in those meetings. This husband and wife, they were at wit's end. We said, we're going to take you as a client, we're going to help, and we worked out a game plan for them.

Today, almost 10 years later, I saw them recently at one of our client appreciation events and I told them, I said, I'm so proud of what you've done because 10 years ago your life was upside down. Yeah. And I said, "Today your net worth is moving in the right direction. It's incredibly good now." They have so turned things around. And all it took was behavior change. Yep. And recognition of the mistakes that they were making and having someone that would force them, right, to put their vision, if you will, on paper. And when we did that, we started building all the elements into their planning. Today, Spell, is different story.

Now the other client that I was thinking about, dentist, bad decisions, seemed to never have enough money no matter how hard they were working and constantly looking for extra gigs, go to another practice, try to do some procedures, get paid a little more. Yep. Earning more did not fix the problem, right? It was a behavioral thing. And so once we got that dialed. Yeah.

Today. Here is the beautiful part of that story. That person's no longer going practice to practice trying to find extra work. We were able to help that doctor acquire a practice two years ago. It's pretty amazing. They now own a practice. Yeah, it's great. And that practice, we still work on the consulting side of the practice. We see those numbers every day, every month. Mhm.

And I'm proud to say that along with our coaching, along with the wealth management and our dental systems optimization arm that helps them with the progression of that dental practice. Yeah, they are living a great life at this point. The family's happy, income is good. They understand what they're trying to achieve. They understand their goals and they're not into lifestyle creep. That's great. They're living life, saving, and accumulating wealth.

So, two turnaround stories and they happen a lot. Yeah, those are great. Both of those were bad. Yeah, they were in a bad spot. Today, they're in a great spot. Not bad anymore. Not bad anymore. That's great.

Y So, Phil, a lot of what we're talking about is not necessarily for someone who's living in poverty. You mentioned that.

It's for the people who have multiple cars and a nice house and a nice boat and they have everything that they could want and, most of the time, their kids have everything that they want, and that's not a bad thing. That's not a bad thing. A lot of times that's indicative of you're doing something right in life. You've got some level of success that's affording you those things. But success can make you a target, right, of, unfortunately, of lifestyle creep.

Yeah. You get into overconsumption.

Yeah. And that can really be corrosive because if it goes too far, you don't know how to stop it, right? And it's so hard to stop, and by the time you do, you've just blown. There's an old song by Jimmy Buffett that says, "I made enough to buy Miami, but I blew it so fast." I think he uses another word, but—

Yes, I think you're right.

But just think about that. And that happens to so many people. They make enough money to afford an incredible lifestyle and all of a sudden they realize, gosh, I've blown all of it and they have nothing to show for it. So all of a sudden you get into comparing yourselves to others.

Yeah.

You get into this overconsumption as a result of that. You think you need it to look good, to look like you fit, right? And then the other piece of that is you can get a lot of bad advice because the more money you make and the more people you're around, everybody has opinions, Spell.

Yes, they do.

And so when you're around people who think they know something and they see you're successful—

Yeah.

—you can really pick up some bad advice from people that you know, like, and trust. And those things can take you down a really bad path. The advice, the comparison to your friends and just overconsumption in general.

So making a lot of money, you're exactly right, it is easily distinguishable. And in most cases in America, people gauge success on how much one makes, right? Or how much stuff one has.

Yeah.

So, on the surface, the aesthetics say that, oh, they're really successful, but they could be dying inside wondering how they're going to get out of all this, or simply saying, oh, I just need to make some more money because that'll fix it. But remember, that is a behavior issue.

Exactly.

And making more money doesn't fix it. So, Phil, what would you tell a person listening who's doing well, making good money, but deep down they know that they're out of control?

Yeah. So I think, Spell, that's probably a—that is one of the best questions that we can answer for people, and I think we see that a lot where people are making a lot of money. They are living the good life.

Yeah.

They are enjoying life at a level that they probably never imagined, and if they did, they didn't really give it a lot of thought except, gosh, I want to hurry up and get there. Right? And now that they're enjoying life, they're not getting good advice. They're forgetting to save. They're forgetting to have a checklist, if you will, for good behavior. They're forgetting about a cash flow analysis. They're not doing the fundamental things, the basic things.

Yeah.

And so if you're listening and you think your life's a little bit out of control, you're spending everything, here. Here's a little bit of a litmus test. If you're making 100,000, 200, 400, 500, a million, check, just do this for three months. How much money are you saving each month? Or if you're not saving it, how much do you have left to blow? Write it. How much of your expenses are required? How much of them are desired?

Yep.

And check those numbers. Do it over 90 days. And you'll know in 90 days, you'll know exactly where you're going wrong or if you're going wrong. Heck, you might be saving 50% of your income or more. In that case, I would give you a kudos. Big applause. Get a check. But 90 days, check those things. And if you find that you're not in a position of solid savings—

Yeah.

—and knowing that you have plenty of discretionary dollars, you probably are out of control and you need some help.

Yeah. So if you just think about people, everybody, they want to build wealth. They want to have a successful life. But if you're trying to build wealth without clarity, just think about someone who's hiking, someone who's on the trail, but they don't have a compass.

Yeah.

The minute that you go off trail a little bit to check out a new scene or check out an area in the wilderness where you spot something, you think, "Wow, that's really cool. Let me go take a look over there."

Mhm.

All of a sudden, you can get lost. And if you don't have a compass or some kind of directional beacon, you may not get back on course until it's too late. Right? And we see that happen a lot. So I think metaphorically you need a good compass. And that compass could be an adviser like OmniStar, like our firm. It could be a good book. It could be anyone of your choice. And usually a relationship with someone, a good advisory team or a firm. They're going to talk to you about these things and they're going to give you the right advice, and they're going to tell you the things even when they know that it's something you might not want to hear. You want that kind of honesty.

Otherwise you can be in a direction that feels really, really good and feels successful, and by all—really, by any indication from the public or your friends, they're going to say, man, he's doing great, or you're very successful, or she's got it made here. So by all indicators you would say yes, everything's great, right? But you could be in the wrong direction.

True.

And if you stay in that direction long enough, then you might reach the point of no return.

Yep.

If you enjoyed this episode, be sure to check out our episode on cash flow where Phil and I talked about how Mike Tyson lost $300 million. You don't want to be in his