{"id":27,"date":"2023-07-24T12:00:00","date_gmt":"2023-07-24T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/a-rule-for-avoiding-lifestyle-creep-dont-live-beyond-your-assets\/"},"modified":"2025-09-05T16:31:45","modified_gmt":"2025-09-05T16:31:45","slug":"a-rule-for-avoiding-lifestyle-creep-dont-live-beyond-your-assets","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/a-rule-for-avoiding-lifestyle-creep-dont-live-beyond-your-assets\/","title":{"rendered":"My Rule for Avoiding Lifestyle Creep: Don\u2019t Live Beyond Your Assets"},"content":{"rendered":"
\n

A piece of personal finance advice that always seemed too obvious to be helpful is to \u201clive beneath your means.\u201d<\/p>\n

\u201cMeans\u201d feels like a word from a Little House on the Prairie<\/em> reboot, and besides, \u201cif you have $5, don\u2019t spend $10\u201d isn\u2019t exactly an earth-shattering insight. I\u2019ve always found it to be a frustratingly inadequate benchmark for financially sound decision-making.<\/p>\n

Whether the original intent behind the word \u201cmeans\u201d was \u201cliquid net worth\u201d or not, my interpretation (and how I often heard the phrase doled out) was that you shouldn\u2019t spend more than you earn<\/em>.<\/p>\n

And if you\u2019ve been working for a long time at steadily increasing your income, not spending more than you earn might actually be a relatively low bar to clear. <\/p>\n

If you make $150,000 as a single person with no children anywhere aside from NYC or the Bay Area, I\u2019d argue it should be relatively painless for you to get by with expenses lower than $150,000 per year.<\/p>\n

But does that mean you\u2019re tracking toward your goals? Not necessarily! <\/p>\n

Someone who spends 95% of their take-home pay will have a much longer road to financial independence than someone who spends 65% of their take-home pay, even though both people are technically<\/em> following the black-and-white advice to live beneath their means. Their long-term outcomes couldn\u2019t be more different.<\/p>\n<\/div>\n

\n
>
\n \u201c<\/span>A more helpful version of this rule emerged for me: Don\u2019t live beyond your assets.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
\n

It wasn\u2019t until I found myself in a peculiar economic position that a more<\/em> helpful version of this rule emerged for me: Don\u2019t live beyond your assets.<\/strong><\/p>\n

Once I found myself graduating from a median income to a higher one, I straddled the line between two worlds: Do I maintain my exact same lifestyle and invest everything extra, or do I recognize that I can afford a little<\/em> lifestyle creep?<\/p>\n

The hard part? There\u2019s no rule of thumb for how to handle such a situation. I felt silly skimping on brand name orange juice, but I was also terrified of backsliding into the old, spend-y habits that used to drain my checking account every month.<\/p>\n

Just because I was making more money didn\u2019t mean I was wealthy, and I struggled to find balance.<\/p>\n

When I made $50,000\/year, these decisions were paradoxically easier: I didn\u2019t have a ton of extra cash every month. I spent what I spent, saved what I saved, and the whole ordeal involved less than $3,100 per month of total inflows and outflows.<\/p>\n

But what if you suddenly find yourself making 3x that? 5x? 10x?<\/em> (Hey, dream big!)<\/p>\n

Some suggest keeping your savings rate the same as you earn more (increasing the amount you\u2019re saving proportionally with your income), but that introduces a new quandary: Your target is technically getting further away, and your financial independence date doesn\u2019t actually get any closer despite your income rising.<\/p>\n

If only there were a reliable metric we could add to the equation to help guide our decision\u2026<\/p>\n

Fortunately, there is: Your net worth.<\/p>\n

Your income might look as though it justifies your spending\u2014but would your net worth?<\/h2>\n

The big question mark for me was this: Sure, I have more disposable income now that could feasibly fund a more lavish lifestyle.<\/em> But if you looked in my investment accounts\u2014my larger financial picture\u2014would my spending behavior still seem reasonable and justified?<\/em><\/p>\n

An example<\/h3>\n

Let\u2019s pretend I\u2019m a beautiful 23-year-old TikTok star who suddenly found myself earning $400,000 per year thanks to lucrative brand deals and a sparkly personality. I\u2019m making great money, no?! I\u2019ve had my eye on the Mercedes-Benz G-Wagon for a while, a $140,000 car. Could I make the case for affording that vehicle, given my income? Well, I suppose so\u2014it\u2019s roughly \u2153 of what I earn in a year, right? That\u2019s not too<\/em> outrageous. <\/p>\n

But wait\u2014my liquid net worth is only $50,000. Now<\/em> does it make sense for me to buy a car that\u2019s worth nearly 3x my entire life savings? Almost certainly not. <\/p>\n

By marrying these two metrics\u2014our liquid net worth and our income\u2014we can strike a better balance<\/strong> around the type of lifestyle that\u2019s reasonable to live, as opposed to just looking at one number or the other. While income is the number most people use to determine what they can spend, it only tells half the story.<\/p>\n

Here\u2019s where I landed (and I\u2019ll share how I formulated this below)<\/strong>: Your reasonable annual spend is the average of 4% of your current invested assets\u2014inspired by the 4% Rule<\/span><\/a>\u2014and your income.<\/p>\n

For example, someone who has a net worth of $250,000 and an income of $250,000 (let\u2019s pretend that\u2019s after tax, for simplicity\u2019s sake) would net the following annual spending that\u2019s beneath both their income means and<\/em> net worth means:<\/p>\n<\/div>\n

\n
>
\n \u201c<\/span>By marrying these two metrics\u2014our liquid net worth and our income\u2014we can strike a better balance.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
\n

4% of your net worth: $250,000 * 4% = $10,000
Post-tax income: $250,000
$10,000 + $250,000 = $260,000<\/p>\n

$260,000 \/ 2 = $130,000<\/strong><\/p>\n

In this example, someone who makes<\/em> $250,000 per year and is worth<\/em> $250,000 would find a reasonable \u201cbelow their means\u201d annual spend of $130,000<\/strong> maximum. This allows them to enjoy their higher income without<\/em> meaningfully disrupting their progress toward financial independence.<\/p>\n

(Note: I\u2019m using \u201cpost-tax\u201d a little colloquially here; if you\u2019re also tossing a giant chunk of money every month into something like a 401(k), HSA, 403(b), or other account sponsored by your noble corporate benefactor, don\u2019t forget to include that in your income, too\u2014it\u2019s still your income, you\u2019re just opting to save it before you see it like the wise Rich Girl you are.)<\/p>\n

Here\u2019s a table that takes incomes between $50,000 and $500,000 and net worths between $50,000 and $1,000,000 into account (our example is shaded in green).<\/p>\n<\/div>\n

\"\"\/<\/p>\n

\n

How I came up with this part-art, part-science formula<\/h2>\n

The \u201c4% of net worth\u201d figure serves as a bit of an anchor: It reminds you of the type of spending that your current invested assets can support (thanks to the 4% rule), which can lend some perspective to how much progress you\u2019ve already made and how far you have to go.<\/p>\n

As you\u2019ll see in the table, even someone who\u2019s worth $1 million and earns $250,000 should spend no more than $145,000 per year\u2014because while it sounds<\/em> like a lot of money (in both cases, because it is!), the proportionality of financial progress means they\u2019d need roughly $3.7 million invested to support their spending if they were to lose their income (rendering a net worth of $1 million still quite far from their goal). <\/p>\n<\/div>\n

\n
>
\n \u201c<\/span>This formula keeps a tight leash on lifestyle inflation by grounding it in the reality of one\u2019s net worth.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
\n

This formula keeps a tight leash on lifestyle inflation by grounding it in the reality of one\u2019s net worth\u2014never allowing the runaway freight train of luxury cars and Uber Eats (guilty) to derail one\u2019s progress completely.<\/p>\n

On the flip side of the equation, if someone found themselves on the opposite side of the income spectrum but with similar moolah in the bank\u2014$50,000 income and $1 million net worth\u2014you\u2019ll notice that the recommendation is to spend nearly everything<\/em> they\u2019re earning, because they\u2019re so close to financial independence so as to not need<\/em> to be saving much more.<\/p>\n

Widening the aperture in this way allows you to give weight to what\u2019s arguably the more meaningful, permanent variable in your financial life\u2014your net worth\u2014as opposed to basing 100% of your spending decisions on your current, subject-to-change income. This guideline should also help high earners on their way to financial independence understand just how much they can indulge with their incomes\u2014without going overboard.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

A piece of personal finance advice that always seemed too obvious to be helpful is to \u201clive beneath your means.\u201d \u201cMeans\u201d feels like a word from a Little House on the Prairie reboot, and besides, \u201cif you have $5, don\u2019t spend $10\u201d isn\u2019t exactly an earth-shattering insight. I\u2019ve always found it to be a frustratingly […]<\/p>\n","protected":false},"author":178814,"featured_media":2398,"comment_status":"closed","ping_status":"open","sticky":false,"template":"si-template-single-post-everyday-spending-and-budgeting.php","format":"standard","meta":{"footnotes":""},"categories":[37,36],"tags":[45,59],"class_list":["post-27","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-independence","category-spending-and-saving","tag-everyday-spending-and-budgeting","tag-popular-everyday-spending-and-budgeting"],"yoast_head":"\nMy Rule for Avoiding Lifestyle Creep: Don\u2019t Live Beyond Your Assets - Money with Katie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/moneywithkatie.com\/a-rule-for-avoiding-lifestyle-creep-dont-live-beyond-your-assets\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"My Rule for Avoiding Lifestyle Creep: Don\u2019t Live Beyond Your Assets - Money with Katie\" \/>\n<meta property=\"og:description\" content=\"A piece of personal finance advice that always seemed too obvious to be helpful is to \u201clive beneath your means.\u201d \u201cMeans\u201d feels like a word from a Little House on the Prairie reboot, and besides, \u201cif you have $5, don\u2019t spend $10\u201d isn\u2019t exactly an earth-shattering insight. 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