There is an account on Instagram called Rich Kids of Instagram . On it, kids with really wealthy parents, post pictures of themselves on yachts, private jets or in their Rolls Royce cars. They also like to post pictures of all their possessions and the difficulty of picking which Rolex watch to wear that day.
You may be asking ‘why are you telling us this?’ Because it is very common for financial planning clients to tell me that they don’t live extravagant lifestyles and they are right. All you need to do is look at the rich kids of instagram to see what an extravagant lifestyle is.
What people are confusing is extravagance for merely having a lifestyle that suits your income. There is a term for this and is it called Parkinson’s Law. Original used to for is says that “work expands so as to fill the time available for its completion”. It can also be used to describe your spending habits.
When we all start working, we get paid very little and we manage on what we have got. As we get more experience and become better at what we do, our income increases and so does our spending. We go into Pennys a bit less and Hugo Boss a bit more. We might look at buying an Apple Mac instead of the cheapest laptop on offer. Family holidays may be a little bit more frequent and to nicer places. It doesn’t mean that life has become extravagant, it just means that your lifestyle has adjusted to your level of income. That is perfectly fine and normal. No one expects you to continue to live the same life as when you had to watch every penny.
The problem arises in being able to sustain that lifestyle throughout your entire life. You get accustomed to living a certain way and that means you need more money in retirement to continue that life when you retire. By all means increase your standard of living as your income increases but always live within your means and make sufficient provision for retirement when your income will stop and you have to live off savings.
If you have any questions, send me an email at steven@bluewaterfp.ie