Lifestyle inflation is how expenses related to your lifestyle can slowly start to increase as your earnings increase.
We all know higher earnings can mean a higher net worth, but a high salary doesn’t mean much if it’s all spent on everyday expenses.
Related: Handling Expensive Friends
Over the past few years, our salaries have increased to the point where we have taken a hard look at our expenses and decided whether we would be comfortable spending more every month on “stuff” – the latest phone, new furniture for the living room or the occasional dinner at a fancy restaurant.
The answer is no. Despite our salaries increasing lately, we still maintain the spending habits we did before when we earned much less.
The easiest way to avoid lifestyle inflation is by making a simple monthly budget and sticking to it.
It doesn’t have to be complicated but more detail is better. Simply listing your income and the monthly expenses gives a clear picture on where the money is going and if any changes need to be made.
A monthly budget leaves no room for lifestyle inflation – the monthly expenses can increase but they’ll be clearly shown on the budget. Comparing your monthly budget to past years also helps to show where spending has increased.
Personally, I love spreadsheets (typical accountant) because they show so much about your financial picture.
Living like a Student
My wife and I met in school, a time when we both learnt to budget every month and control our spending. The reality is that we had no choice – neither of us had an income during the school year and if we spent all our money on wasteful things we wouldn’t have enough money to pay for tuition.
Back then we lived the typical life of a student – taking public transit whenever possible, using coupons, avoiding expensive restaurants and making our own food at home.
I’m happy to report that we both still live (somewhat) like students. Obviously we don’t live in student housing anymore but we still keep many of the same spending habits.
- We have vehicles but we take public transit whenever possible
- I use coupons for virtually everything I purchase
- We have a monthly budget we can live with and we stick to it
- I do have a smart phone but I buy them discounted from private sellers using online classifieds
By living like students, any extra income we earn usually gets invested which allows us to save even more for retirement.
Keeping Up With the Joneses
I can honestly say that having the latest car/phone/watch doesn’t excite me. I do like checking them out, but I’m not willing to pay a premium to have the latest and greatest gadget.
A lot of people become so concerned with impressing others without realizing it can have a hugely negative impact on their finances. Trading in your vehicle every year to get the latest model can cost thousands, and it’s just one example of how people become fixated on what others think.
I’m not concerned what others think of my spending and that helps me save money.
If I cared what others thought, I’d want to spend more to impress them. I realize this is a downward spiral that never really ends, so I refuse to participate.
Besides, anyone that is willing to judge me solely on material things isn’t worth impressing anyway 🙂
Conclusion: living like a student, keeping a monthly budget and not trying to impress others with material things has allowed me to keep lifestyle inflation in check.
How do you handle lifestyle inflation?