Avoid “Lifestyle Creep” at All Costs

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Even before this energy price spike, affordability was a growing problem. A structural, long-term trend.

The chart below, via Goldman Sachs, shows how costs have risen in the U.S. since 2000. The dotted lines represent projections out to 2035.

Source: Goldman Sachs

Hospital services are up nearly 300% in 26 years. Tuition more than 165%. Daycare costs up 150%. And these are based on government statistics, which always undercount true inflation.

There are fluctuations, but the pattern is clear. Steadily higher.

As a percentage of income, these items are eating up a bigger piece of the pie.

It’s affecting Americans across the board. As our colleague Zach Scheidt recently highlighted in our app’s Daily Feed, the savings rate recently dropped to 3.6%.

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Americans are saving less, and more people are living paycheck to paycheck.

A shocking example of this comes from that same Goldman Sachs report. The firm’s survey showed that 41% of households making more than $300,000 per year consider themselves “paycheck to paycheck”.

Source: Goldman Sachs

Shockingly, 40% of those making more than $500,000 per year also report living paycheck to paycheck.

Look, much of this comes down to inflationary factors we can’t control. But if you’re making more than $300,000 or $500,000 per year, and not saving, that’s… not ideal.

Lifestyle Creep

This phenomenon is known as “lifestyle creep”. In other words, as we make more money, we spend more.

Too many people get a raise or bonus and spend it on expensive vacations, optional home renovations, or a new car, rather than investing it.

Most of us are guilty of this to some extent. But if you’re reading this newsletter, that means you’re actively looking to become a more effective investor.

And in today’s pricey world, being better at investing means spending less.

Driving your car until it dies. Cancelling that cable package and switching to a cheaper streaming service. Moving your money out of that big bank that pays 0.03% on savings and getting a better yield. Keeping those older appliances and fixtures. Ditching expensive meals out and cooking great food at home for less.

A lot of it boils down to not falling into status traps. We need to look at living beneath our means as a superpower. That’s the first step.

And then there’s the investment angle…

Adapt, Survive, Thrive

I understand saving and investing isn’t easy in this environment. Costs are rising and the job market stinks.

For those who are already retired, finding attractive income investments is also a challenge. The S&P 500’s dividend yield is down to a paltry 1.1%. Stocks have done well of course, but yields are tiny at current levels.

Treasuries could perform well over the next few years, especially if the Federal Reserve is forced to cut rates and restart QE. But after that, inflation is likely to outpace bond yields. And there’s always a chance rates rise significantly (and Treasury prices fall) before the Fed is forced to act.

During such times, having exposure to alternative investments is important. This is why we here at Paradigm have been focused on these ideas.

Gold, silver, miners, oil, and other natural resources. These themes have all beat the S&P 500 handily over the past few years. And most investors owned very little of them. But if you were a member of Jim Rickards’ services over that time, you did.

Our goal is to continue helping you find solid and profitable ideas for these crazy times. But in order to take full advantage of them, some need to take that first step – and spend less.

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