Why I’m Baking Lifestyle Inflation Into my Coast FI Plan

The Reality of Lifestyle Inflation [00:00:00]

• Evan, at 25, is proactively planning for lifestyle inflation within his Coast FIRE strategy, acknowledging that his current frugal spending habits are unlikely to last decades.
• He believes that building future spending increases into his plan makes financial independence more realistic.

  "So instead of pretending that his spending is never going to change, he's actually building lifestyle inflation into his Coast Fi plan."

Current Spending Habits [00:01:30]

• Evan currently spends approximately $2,600-$3,000 per month, which he notes is on the upper end of his average.
• This spending level aligns with the bottom income quintile for single individuals aged 25-34 in the greater Philadelphia area.

  "And I'm in the exact same boat as you were, that I'm spending $3,000 a month on the upper end, probably on average, I'm closer to $2,700, $2,600 a month."

Anticipating Future Spending Increases [00:02:15]

• If Evan were to increase his monthly spending by $1,000, he would upgrade his apartment, potentially his car, or spend more on social activities like concerts and events.
• He currently limits these activities rather than excluding them entirely, viewing his spending as a balance rather than a sacrifice.

  "Today's context, if I were to spend $1,000 more per month, maybe I would upgrade my apartment, maybe I would potentially upgrade my car, or just spend more with my friends and family, going out more, going to more concerts and events, things like that."

Philadelphia Spending Averages [00:04:30]

• Data for the greater Philadelphia area indicates that a single person aged 25-34 in the middle income quintile spends about $4,800 per month.
• The bottom income quintile for this demographic spends around $2,500 per month, placing Evan's current spending within that lower range.

  "So in the greater Philadelphia area, let's do Philadelphia, Philadelphia, Camden, Wilmington, Pennsylvania, and that area, a single person aged 25 to 34, you're on the young end of that. So you'll probably be at the lower end of this range is spending about $4,800 per month across all of the consumption categories that we track in the middle income quintile."

Projected Spending with Family [00:06:30]

• Evan anticipates his spending would move towards the median quintile if he were to marry and have two children, expecting to spend around $7,200 per month in the middle quintile for a couple aged 35-44.
• This projected increase is intentional, driven by a desire for more financial freedom and flexibility as his life progresses.

  "I think you'd move towards the median, I think that I would begin to move towards the median, because my spending now is totally intentional to build more financial freedom and flexibility in my ability to spend more."

Scott's Experience with Spending Growth [00:08:00]

• Scott shares his own experience, starting with spending around $2,600-$3,000 per month at age 25 in Denver.
• Today, as a couple with kids, his household's middle quintile spending is projected at $7,800 per month, significantly higher than his initial figures.

  "And then now today, you know, I look at a couple with kids for a four portion household age 35 to 44. And you know, in the middle quintile, now that spending is $7,800 per month."

The Impact of Childcare Costs [00:09:30]

• The cost of childcare can drastically increase household expenses, pushing spending for a household of four with both parents working and children in daycare to $11,600 per month in some metro areas.
• Evan notes that Philadelphia's childcare costs are projected to be about 40% cheaper than in Denver.

  "And by the way, if you both work and put your kids in daycare, that spending number jumps to that number, at least during that period. And that's a real choice or trade off people have to make that numbers being $11,600."

Evolution of FI Community's View on Spending [00:13:00]

• Historically, the FI community often prided itself on maintaining low spending numbers as a core identity and worldview.
• There's been an evolution, with a growing recognition that spending more over time is natural and that the goal isn't just to accumulate wealth but to enjoy it.

  "And I think that that has evolved and very painfully so for many people who basically, I think of myself as a minimalist or as someone who was very frugal. And now as a multimillionaire, I'm grappling with several pressures at once."

Coast FIRE as a Solution for Lifestyle Inflation [00:20:00]

• Coast FIRE is presented as a viable strategy for those who anticipate lifestyle inflation, allowing for more spending flexibility during life stages with higher expenses, like raising a family.
• This approach balances investing for the future with enjoying the present, acknowledging that hyper-frugality might not be sustainable or desirable long-term.

  "And I think that that's an interesting one, which I have not yet fully grappled with for myself or for the community here. All I think is the beginning of answering this question starts with data and averages, because I think it's too large a bet for many to bet that you will spend in the bottom quintile your entire adult life."

Calculating Coast FIRE Numbers [00:23:00]

• Evan's Coast FIRE goal is to have $500,000 by age 30, projected to grow to $5 million by age 65, yielding $200,000 annually based on the 4% rule.
• This target was informed by observing the spending habits of peers and considering median spending for a couple with no kids at age 65.

  "My goal, I'm 25 now. My goal is to have $500,000 by age 30 and that's projected to grow at a 7% real growth rate to $5 million by age 65, which using the 4% rule would give me an inflation adjusted $200,000 per year in retirement income."

Managing Lifestyle Inflation: A Balanced Approach [00:30:00]

• Lifestyle inflation should be managed, not avoided entirely, as it's unrealistic to maintain hyper-frugal spending for decades.
• The data and tools discussed can help individuals understand their spending in context, make more realistic assumptions, and feel more comfortable with gradual increases in spending as their lives evolve.

  "I think lifestyle inflation should be something that you manage, but not something that you should try and avoid entirely. You shouldn't expect that your spending as a hyper frugal 25 year old will be maintained for three to four to five to six decades."

The Role of Data in Planning [00:32:00]

• Using data and averages helps ground financial planning assumptions, especially regarding future spending, which is often harder to predict than investment returns.
• It can validate changes in spending patterns, showing that moving towards median spending levels as life circumstances change is normal and not necessarily unhealthy.

  "And I think the data will also help you understand if you're spending in a way that's out of control in one of your consumption categories. And you can say, you know what? We're actually spending way more in this particular category than even people in a fourth or the top quintile in some months."

Future Spending and Disney Stock [00:26:30]

• Evan anticipates his spending will slowly creep towards the median in his mid to late thirties, potentially influenced by family expenses like Disney-related activities.
• Scott agrees, noting that expenses like Disney trips and subscriptions are common challenges for families on the FI journey.

  "And you're like, if you're anywhere on the five journey, you're like, oh, I'm going to end up at 65 here with a huge pile of money if I keep this up. And that's like a big one. Like, do I go to Disneyland or not?"

Resources and Tools [00:34:00]

• The BiggerPockets Money podcast offers a free budget calculator tool at biggerpocketsmoney.com/budget.
• Additional resources for healthcare costs and financial professionals are also available on the BiggerPockets Money website.

  "Well, before we do, quick reminder that this resource can be found at biggerpocketsmoney.com budget. It's totally free. There's no email required. I don't store any data. I don't think there's a way to capture any data on this particular document here."