Wednesday, December 12, 2012

Budget Your Life - Build Your Lifestyle Ceiling

I want to take a brief moment to wish a very Merry Christmas and a Happy New Year to you and yours from all of us at Kemp & Associates!

As we approach the holidays, it’s both a delightful time to spend with family and friends, and a time to step back, count our blessings and reflect on how fortunate we are. It is also a time when your budget may become slightly tighter. This leads into our next topic, which is the lifestyle ceiling1

My family has been busy helping our oldest son get ready to attend college. It has been a great time to instruct and reflect with him, and it has also given me the opportunity to take a step back and remember what it was like for my wife, Shelley, and I when we attended college. If we go back 25 years when I graduated from high school in 1983, college wasn't a guarantee. If we go back 50 years2, college was a luxury to some, maybe even akin to winning the lottery or striking it rich. 

Today, it's pretty much expected that anyone who wants to attend college can. They might end up with student loans, they might have to work their way through it or go to community college or live at home to save costs, but it’s very much a given.

What changed? The lifestyle ceiling has gone up as we consider things that were a luxury in the past to now be “standard issue,” or a necessity.

My kids like to joke about the first TV my wife and I had, which was a 14-inch screen that came with a battery-powered remote control. Today, that screen size would be smaller than most laptops, and the remote would be considered antiquated. If we go back to 1955, my father's family won a Christmas department store drawing for a black and white television set, even before they had a television station in Anchorage, Alaska, where my family lived at the time. 

Whether it's attending college, owning a TV or an air-conditioned car, times have changed, but how? Certainly technology has made incredible advances, but our expectations and entitlements also have made great leaps. Because of this, it’s important for each of us to determine how to live within our means.

One of my mentors at a very young age, Jim Elmquist, was a school principal and administrator for the Minneapolis School District. Beginning at a very young age, each time Jim got a raise, he took a quarter of that amount and put it into his cash flow. He took the remaining three quarters and put them into his retirement plan, which is now a 401(k) for teachers. The way Jim set his lifestyle ceiling has been a great example for me in my life.  

The idea of the lifestyle ceiling is to set a limit of how much you're going to spend early in your life. If you can learn to live within your budget and below your income flows, you not only give yourself the opportunity to save more money, but you set yourself up for a successful retirement.  When you do retire, no matter how much money you have, if you cannot live within your means, you're always going to have financial problems. 
One stunning study3 is that 44% of lottery winners will spend all their winnings within the first five years.  Although lottery winners have an extremely high inflow of money, they consume it at a much faster rate. The same can be said about some professional athletes.  What can make the difference? Again, it’s personal discipline. One of the first steps to success, besides having a budget, is having self-discipline.

Whether it's learning to live within your budget, regulating impulse purchases or simply learning to appreciate the things that you do have in life, the holiday season is a particularly important time for us to re-examine our own lifestyle ceilings. I always use the old maxim that, “If you're hard on yourself, life will be easy on you.” Conversely, “if you're easy on yourself, life's going to be very hard on you.”

"The Meaning of Living within Your Means" CNN Money, February 19, 2009;  

"Digest of Education Statistics: College Enrollment Rates of High School Graduates, by Sex: 1960-1998” National Center for Education Statistics;

"Lottery Winner Statistics” Statistics Brain, February 11, 2012;

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