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Rise Above Lifestyle Inflation and Achieve Your Financial Goals

Wellthi GPT

Let’s talk about lifestyle inflation, or as we like to call it, “lifestyle creep.” It’s that sneaky phenomenon where your spending starts to rise as your income increases. Before you know it, you’re caught up in a whirlwind of upgraded coffee runs and daily lunches out. But don’t worry, we’ve got your back! Wellthi is here to guide you towards financial success while having a blast with your friends. Let’s dive into this exciting topic and learn how to conquer lifestyle inflation like the financial rockstars we are!

Picture this:  a few years ago, you were making $30,000, packing your lunch, and indulging in a takeout coffee every now and then. Fast forward to today, and you’re rocking a $45,000 salary. But now, you find yourself buying lunch almost every day and sipping on takeout coffee three times a week. Whoa, that’s lifestyle inflation in action! NPR’s Life Kit podcast has some fantastic examples of lifestyle creep that you can relate to. It’s time to take control and unleash your financial potential!

Now, here’s the deal. It’s not a crime to splurge a little here and there, as long as it aligns with your budget. But excessive spending might just mean that lifestyle inflation has snuck into your life. And guess what? It can hinder you from achieving those amazing financial goals you’ve set for yourself. Say you want to build up a savings cushion to avoid relying on credit cards during the holiday season. Lifestyle creep might drain that cushion before you even get a chance to make it cozy.

But fear not, our financial warrior! We’re here to help you determine if you’re in the lifestyle inflation danger zone. Let’s break it down step by step:

  1. Track your finances like a pro: To understand your spending behavior, you’ve got to know where your hard-earned money is going. Take a peek at your bank records, credit card statements, and other financial records. Pro tip: If you’re already a fan of money-tracking or budgeting apps, you can download your spending data in a jiffy!
  2. Debt check-in time: The more debt you’ve got, the tougher it becomes to pay it down, especially if lifestyle inflation has sneaked its way into your life. Take a good look at your bank and credit card statements. If the amount you’re paying toward debt has shot up, it might be a sign that you’re spending more than you earn and relying on credit cards or other forms of debt to make ends meet.
  3. Discretionary spending analysis: Time to organize your spending into categories like housing, clothing, food, and transportation. Now, compare your spending habits month to month. Do you notice any significant differences? Small increases due to property tax hikes are fine, but if your spending on discretionary items like eating out, shopping sprees, and entertainment has skyrocketed, lifestyle inflation may have made itself comfortable in your life.
  4. The nitty-gritty of expenses: Apart from analyzing the amounts you spend on discretionary items, take a closer look at what you’re specifically splurging on. For instance, imagine you recently got a job promotion and a raise. You need a new vehicle, and instead of going for a similar model, you decide to treat yourself to a luxury ride. Sounds familiar? These choices can be telltale signs of lifestyle creep.
  5. Saving goals under the microscope: Time for some introspection! Are you making progress toward your financial goals? Have you managed to squirrel away at least $1,000 in your emergency fund? Or have you treated yourself to a dreamy vacation without relying on a credit card? If your income has increased, but you’re still struggling to save or make headway on your financial goals, lifestyle inflation might be the sneaky culprit.

So, how can you stay one step ahead of lifestyle inflation? Let’s unravel a few strategies:

  • Keep tabs on your spending: When you track your spending diligently, those small changes in your finances become crystal clear. Before adding new expenses or altering your spending habits, ask yourself if they align with your bigger financial picture.
  • Automate for success: Set up automatic deposits to your savings account to effortlessly reach your financial goals. You can also automate loan or debt payments to make sure you’re prioritizing your financial well-being.
  • Embrace the power of budgeting: If you’ve received a promotion or a raise, calculate how much extra dough will land in your pocket. Then, create a new budget that aligns with your increased income. Smart budgeting is key to keeping lifestyle inflation in check.
  • Don’t forget to indulge: A tight budget might tempt you to rebel and overspend. Instead, set aside a little money each month for guilt-free splurges or impulsive buys. This way, you can enjoy life within your means while still achieving your financial goals.

Now, let’s talk about what drives this whole lifestyle inflation phenomenon. Social factors often play a significant role. Ever heard of “keeping up with the Joneses”? It’s all about comparing yourself to others and feeling the need to match their spending habits or possessions. But remember, your happiness doesn’t depend on what others have. Don’t let envy dictate your financial choices. Take a moment to reflect and understand that what you see on social media isn’t always real life. That glamorous vacation might not bring you true joy, and those glossy ads might be more about the sponsor’s payday than your well-being.

So, my financial superstar, go ahead and enjoy the fruits of your labor. You’ve earned it! Just remember to tread carefully and live within your means. With a little self-reflection and some mindful budgeting, you can turn lifestyle inflation into a tool that propels you toward a brighter financial future.

And guess what? We’ve got your back every step of the way. Download Wellthi, and embark on your financial journey with friends by your side. With Wellthi, achieving your goals is as rewarding as it gets!

DIG DEEPER

The 8 Best Budget Apps for 2023– NerdWallet

What Is Lifestyle Inflation?– The Balance

Can Your Lifestyle Inflation Keep Up With Investment Inflation?– Financial Samurai

“Financial Independence: The Road Less Traveled” – Mr. Money Mustache  

Wellthi-trusts

The IRS, Your Irrevocable Trust, and You: Why Your Kids Might Say Thank You!

Ask Wellthi

Wellthi warriors, gather around for a story more twisty than your last TikTok dance trend. It’s about the tax boogeyman – IRS and its March ruling that has rocked the world of estate planning.

So, you’re thinking, “Trust? Isn’t that what my last ex had issues with?” Nope, not today! We’re talking about irrevocable trusts. These bad boys have been a favorite of families trying to protect their assets and qualify for benefits like Medicaid and VA Aid and Attendance.

Now, imagine your assets as your college GPA. If you pass them on when you’re still kicking (like selling them), you’re taxed based on the difference between the purchase price (freshman year) and selling price (graduation). It’s like going for that Dean’s list but ending up with a wicked hangover and a B- in Spanish.

But, if you pass on assets after your death, they get a step-up in basis. It’s as if your beneficiaries bought the asset at its current market value, not when you first purchased it. This skips any capital gains taxes, leaving your kids to spend their inheritance on something more fun than taxes (like vegan, gluten-free, probiotic donuts).

But how about the assets chilling in your irrevocable trust? They were in a strange limbo, neither with the original buyer nor passed on to beneficiaries. Post-March 2023, the IRS declared these assets won’t get a step-up in basis. This means more taxes for your kids, leaving less money for their avocado toast habit.

Now, if you’re anything like us, you’re wondering, “Why bother with irrevocable trust planning?” Well, remember that friend who convinced you to join that “Tough Mudder” race? It seemed painful at first but ended up saving you from a spin class disaster.

Long-term care can cost up to $10,000 a month, which is more than the entire Friends cast spent on coffee at Central Perk! Programs like Medicaid or VA Aid and Attendance can help, but you need to deplete your assets before qualifying – enter, the irrevocable trust.

The IRS ruling states that only assets not included in your estate for tax purposes at death will lose the step-up. Properly setting up an irrevocable trust can include the assets in the taxable estate at death, meaning no capital gains taxes, no estate taxes, and a tax-free inheritance for your kids!

In short, think of an irrevocable trust like your favorite mystery series: It needs careful planning and a brilliant lawyer to save the day. Remember Tom and Jane? They sold their $250,000 house they bought for $100,000. Without an irrevocable trust, their kids are stuck with capital gains tax on the $150,000 growth. With an irrevocable trust (properly worded, of course), the kids owe nada on capital gains.

So, my Wellthi warriors, strap on your financial battle armor and plan. The world may be complex, but with sound advice and our trusty Wellthi GPT by your side, your financial future can still have more wins than the current world champions. Now, who’s up for a victory dance?

Go Deeper

Trust Funds: Your Child’s Golden Ticket to a Secure Financial Future? (Wellthi)

What Is an Irrevocable Trust? (Investopedia)

What You Need to Know about a Revocable vs Irrevocable Trust in Estate Planning (Trust and Will)

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