Quality of Life vs. Standard of Living -- Inflation's Impact
Do you have financial breathing room?
In America, our lives are busy and fast-paced. Personally, that is the way I like it. I like to be on the go, to have important obligations, and to have great productivity in a day. We have constant and ever-increasing demands on our time. Time is limited; thus, we must limit what we do with our time. Likewise, when it comes to our finances, money is limited. However, we do not have to limit what we do with it. Whereas you cannot borrow time, you can borrow money. The problem? Borrowing money has become much more expensive.
There is a fundamental difference, I believe, between "standard of living” and “quality of life.” Quality of life means enjoying what you have, feeling content about the situation, and enjoying life. Standard of living relates more to the size of your home or the number of designer shoes you wear. What we aim to achieve with our high-net-worth clients is a great standard of living that does not sacrifice, or strain, their quality of life.
The advertisements we see daily tell us that "standard of living" and "quality of life" are the same concept – – that if we raise our standard of living (a better home, a better boat), we will have a better quality of life. This is simply not true. We all know people who have a high standard of living, but not a high quality of life because their lives are filled with more stress, more arguing, more discord.
What if your pursuit of a standard of living is undermining your quality of life?
You can raise your standard of living with debt, but you raise your quality of life with discipline. Don't ever confuse standard of living with quality of life.
There are three things I know about most individuals reading our blog. First, you are living on a percentage of your income. You may not have thought about it, but you do. Second, at some point, you have thought "if I only had a little bit more money, I'd be okay.” However, you felt the same way when you lived on less. And finally, I am confident you want "breathing room" in your finances. Breathing room is the space between our current pace and our limits. Life is better with breathing room.
Americans tend to spend with they make; thus, spending tracks income. If someone makes $350,000 per year and spends $350,000 per year, they feel the same pressure as someone who makes, and consequently spends, $75,000 per year. If your spending is greater than or equal to your income, you most likely have a life full of stuff, but you are unable to enjoy it. Money doesn't raise your quality of life; financial breathing room does. In fact, you may need a lower standard of living to improve your quality of life.
So how can we achieve reading room? It may seem simple but set a “breathing room goal.” Essentially, what is the percentage of your take-home pay or retirement income that you will spend? As a guideline, try to live on 70%-80% or less of this income.
As inflation ramps up, it will be hard to continue to maintain standard of living — new “toys” like boats and cars are substantially more expensive (especially when financing is utilized). Maybe this is a chance to reset and gain some financial breathing room. In the long run, I would wager that creating breathing room financially will raise your quality of life. At some point, quality of life will become more important to you than standard of living – it always happens. Just remember: money doesn't raise your quality of life, financial breathing room does.
DISCLOSURES
The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.