Money Rehab with Nicole Lapin - Are you a creep? Ask Nicole!

Episode Date: August 3, 2021

You get a raise. Awesome! But you notice your bank account did not get a boost. Not awesome. Has this ever happened to you? There’s a name for this: lifestyle creep - the phenomenon where your income charts upwards, but your net worth flatlines. Today, Nicole tells you how to un-creep yourself. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Today on Money Rehab, we have a question from a listener who is having a tricky time

getting ahead of her credit card payments. And I have a creeping suspicion I know what's going on. Here's her question. Hi, Nicole. creeping suspicion. I know what's going on. Here's her question. Hi, Nicole. I wanted to know if you have any tips for paying off large credit card balances. I seem to be in this vicious cycle where I make large payments, but then I don't seem to have enough money for my expenses in real life. So then I resort back to using my credit card. And it's just this cycle that I can't seem to get out of. So if you have any advice for lowering credit card balances, please let me know.

I would appreciate any help you can give me. Thank you so much. Love you and your show. First of all, I totally feel you. And thank you for the kind words. This is a really easy cycle to get into, and I hear about it a lot. Not to mention, I've also totally been there. It will go something

like this. You have $1,000 of expenses on your credit card. Okay, a little stressy. But then you get your paycheck for $1,000, disaster averted. You pay off your credit card balance, you pat yourself on the back. But then it's the end of the month and you have to pay your utilities and shit, you just cleaned out your checking account paying off your credit card bill. So then you have to use your credit card again to pay your utilities and you're back in the red where you started. Lather, rinse, repeat.

I know that this is not going to be what you want to hear, but I have to be honest. It sounds like you're spending more than you're making. Might not be breaking news, but if that's the case, there's no payment plan that I can actually recommend that will make the math pretty for you. You either have to make more money or spend less. The surefire way to get yourself out of this cycle is to revisit your spending plan and make some compromises. Are you living in a house that you can actually afford? Studies show that most people can comfortably afford to pay rent that adds up to roughly 30% of their take-home pay. That's after taxes. If your checking account is being emptied by your rent payments,

you would benefit from finding a new place potentially. I don't want to throw the word downsize at you because it can feel overwhelming and also a little grim. And I seriously do not think that an apartment swap is something to be bummed out about. If your home, though, is costing you more than you can afford, it's not going to feel cozy no matter how big it is or luxurious it is. It's going to feel suffocating, like a financial prison you're stuck in. Even if you need to tack on another roommate or find a house with less square footage, you'll actually feel like you have more room to breathe because you'll be finally ending this seemingly endless cycle of credit card catch-up. If you love, love, love your

apartment, or even if you just want to take a minute to explore all your options, you need to revisit your spending plan. If you're constantly needing to put your expenses on your credit card, you're probably not following the three E's. As a refresher, the three E's are my rules for putting together a successful spending plan where 70% of your income goes to the essentials, 15% goes to the endgame, and 15% goes to the extras. So I want you to look over your spending plan and see where you can free up some cash. Maybe you need to take a page out of my book, literally, and go on the brown rice and beans diet for a few months. Maybe you need to swap out your gym membership for a city bike or cut down on weekly drinks with friends. That said, I really do believe that with finances, it's not necessarily quality over quantity.

Although, yes, we do want to get the quantity of our expenses down, but it's really all about creativity. If you get creative, you don't have to choose between quantity or quality. For example, if you're spending too much money on cocktails with friends, you don't need to see your friends less. You just need to get a little more creative. If you have standing weekly drinks with friends, keep the same weekly hang. Just make drinks the activity every other week. On the alternate weeks, try something with a slimmer price tag, like going

to the beach, making dinner together, or binging on whatever whodunit series is new on HBO or My Unorthodox Life on Netflix, which I just did. Last note on this. If getting cocktails with your friends has been keeping you sane, do not cut it out of your life entirely. Allowing ourselves small financial indulgences keeps us from binge spending later on. Okay, I'm going to get off that soapbox, but in summation, one strategy to make your spending plan add up is to cut down your expenses. The second strategy, and everyone's favorite, is to make more money. Hold on to your wallets, boys and girls. Money Rehab will be right back.

Now for some more Money Rehab. Maybe it's time to ask for that raise or start that side hustle you've been thinking about. But if you're able to boost your cash flow, and this is super duper important, so listen up, you'll want to make sure that you're keeping your expenses the same. This dovetails into the financial phenomenon that is especially common with millennials. It could even be you, and it goes like this. You get your first job out of college. It probably pays peanuts because your resume is looking young and thin, which would be ideal if your resume was meeting up with stereotypical Hollywood casting directors, but in reality, not so great because your resume

is a resume. I digress. The point is you're probably not offered a lot of dough in your first job, but you take the gig just to get your foot in the door. While working at said gig, you may be living paycheck to paycheck and not saving a dime, but that's okay. I know you're probably shocked to hear that from me, the president of the emergency fund fan club. But sometimes the reality is you don't have enough disposable income to make any real dent in a savings account. But you're hopeful that if you work hard, you'll get a raise. And guess what?

You do. You work your ass off and you start to climb the proverbial ladder. After a year, you get a 3% raise and then another year goes by and you get another promotion and so on and so on. Fast forward five boss bitch years later, you're a few rungs higher up the ladder and you're looking back at your former self feeling pretty damn good. You may even be making a couple thousand dollars more than you were when you were just starting out. But your savings account? Well, it hasn't quite climbed the ladder with you. It's still stuck at whatever it was when you got your very first big kid job. And why do you think

that is? I mean, you're making more money, right? So folks should have more money in that scenario, right? Not quite. Just because you're making more money doesn't mean you're saving more money in that scenario, right? Not quite. Just because you're making more money doesn't mean you're saving more money. If you're making more money, it could also mean that you are then spending more money. There is actually a name for this trend. It's called lifestyle creep, the phenomenon where your income is charting upwards, but your net worth is flatlining. I've seen people go from making $60,000 to making $600,000 and yet not get any richer. Why do you think that is? Well, because they're spending increases with their salary. When these

folks were making 60 grand, getting a babysitter so they could go on date night felt like a luxury. But when they jumped into making six figures, extras in their spending plan could become essentials. Then all of a sudden, they're going from booking a babysitter once a month to scheduling interviews for a full-time live-in nanny. The creep is real and can push your goals deep into your horizon, or even worse, eat into your emergency fund if you keep living above your means. For today's tip, you can take straight to the bank. The best way to avoid lifestyle creep is to keep your spending plan the same, even when you have more money to play with. Of course, you should give yourself some small indulgences as you grow in your career, but for your goals

and planning's sake, it's wiser to keep your standard of living consistent so that your long-term wealth keeps growing, not just your short-term spending. Remember, success in money rehab is not about how much money you make, but how much money you save. Money Rehab is a production of iHeart Media. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and

get it all.