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Did you ever buy something more or bigger, because you could? Probably you did, and that’s okay. But what if your entire life keeps getting more and more expensive, because you could afford it with an increasing income? That’s what is called life style inflation or lifestyle creep – and it isn’t that harmless as it seems.
“More Money, Same Problems”
What is lifestyle inflation?
Lifestyle inflation is when your spending pattern behaves like a balloon, the more air you put in, the bigger the balloon – but instead with more money in, more money out. This obviously damages your savings rate and will slow any efforts to build wealth. If this is your behavior, it’s time to learn the importance of enough.
Because what if the balloon pops? Losing your job is a common occurence, even if it has never happened to you, or having serious health issues that don’t allow you to maintain the current level of income? The inflated mortgage won’t stop demanding payments, just because your income dropped. Now let’s have a look at how to prevent that.
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“The more you earn, the more you spend “
– Parkinson’s law
How to avoid lifestyle inflation?
You want to get back control over your financial journey and get busy to build a healthy net worth? Start now buy doing the following things, while you still have time:
Make a plan
Make a (5-year) financial plan, where do you want to be in the coming years, where do you want your money to go? Maybe you’re planning a wedding, kids, buying a home or retirement? These things take money, and you need to know where to get it. Make these plans important to your life, if you want to convice yourself to go out for fancy dinners less. If you’re busy spending all you have, you’ll be looking in the wrong places for money or you’ll just simply have to reduce the desired budget.
Speaking of budget, part of your plan is having one. Make a budget, so you’ll see that the money you’re wanting to spend isn’t actually available to you. You’ll see that your money needs to go to emergency savings and other unexpected expenses, home upkeep and those big life goals you have for your future. You’ll also recognize that you might have plenty of needless subscriptions or loans that are inflating your bills every month – get rid of those and avoid debt and build up those savings by sticking to your budget.
To help yourself with those savings – and to avoid you spending them to sustain a higher lifestyle – set up an automated savings plan. Get that money out of your sight before you can touch it, trust me – with a functional automatated savings plan, you’ll sooner feel poor than get into the habit of getting new car every 3 years.
Save the income increase
Whenever more money comes into your life – wait – don’t make immediate modifications to your lifestyle, you’ll realize that the money will be gone sooner than you’d think. Don’t say you’ve deserved it, entitlement will also inflate and you’ll soon feel that you’ve deserved a lot more than you can buy – the world owes you nothing, but if you’re not careful, you might owe the world. Better to increase that automated savings system to hide away that raise from yourself.
Leave the Joneses be
The so called “keeping-up-with-the-Joneses” is a big danger to inflate your lifestyle, for those that don’t know, “keeping-up-with-the-Joneses” refers to always comparing yourself to the people that surround you, family, friends, colleagues and/or neighbours and trying to match your life style accordingly. It is dangerous, because it puts your budget on an auto-inflator – a bigger house in a fancier neighborhood? You’ll need a bigger, better car to put on the drive way, the neighbors kids have expensive hobbies, your kids can’t stay behind, fancier wardrobes, fancier dinners, all with the risk that if you can’t afford it – you might use credit to pay for it, because you can’t NOT afford it if it’s part of your lifestyle now right? Why not try to select the friends and neighbors that fit with your budget?
Also, before upgrading to a fancier neighborhood, have you considered to calculate the full cost of the bigger house? Besides the effect your neighbors will have, you might need to consider that the bigger mortgage is accompanied with a bigger property tax bill, bigger insurance bill, a bigger gas – and electricity bill – more money needed for the upkeep – etc. etc. you get the idea. Don’t forget the opportunity costs, those extra bills could also fund an early retirement.
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How to NOT avoid lifestyle inflation
This all seems logical and simple to try and avoid, but it’s not that easy as you might think. Lifestyle inflation can come in the form of emotional spending. Especially in a world where financial futures seem bleeker and bleeker, people tend to look for some form of control. Sadly, this control is often found in shopping, buying new things tend to make you happy (at purchase) – but it doesn’t last, which more often than not can lead you to look for happiness again by buying more stuff.
Combine this with an eagerness to look good on social media, or on the street – it is easy to fall prey to buying behaviors that can do more damage to your financial future than it does good for your social media likes. Buyer beware!
Stop looking for external confirmation and appreciate yourself and realise your life is enough. More stuff doesn’t make you happy, financial stability will.
Avoid lifestyle inflation at all costs?
No, there is plenty of reason to have some inflation in lifestyle – even in the fullfilment curve from the book ‘Your Money or Your Life’, there is inflation up until enough is spend.
That’s the thing, spending too little also doesn’t make you happy, and don’t let articles like these fool you into never rewarding yourself with nice things. It won’t last, and it will backfire into even more overspending.
When getting a promotion at work, you do need to look the part, so your wardrobe might need some kind of upgrade, and a new addition to the family might require a relocation to a bigger house in a fancier neighborhood with good schools (if you can afford it). Life undergoes changes, so should your budget.
A healthy budget includes a category for spending, or fun budget. Elizabeth Warren and her daughter Amelia Warren’s book ‘All Your Worth: The Ultimate Lifetime Money Plan’ put 30% of your income to Wants vs. Needs and Savings. The thing is with percentages, the actual spending inflates as the income grows – but that doesn’t mean it should inflate indefinite, keep control of your spending and you keep control of your financial journey. Pay yourself first.
My Experience with Lifestyle Inflation
This is one thing that I feel that I’ve had the opposite problem with, as I’ve grown older and started earning more – I’ve actually started spending less and less as I’ve gotten less value from the money spent. I mean, I love playing videogames, but buying a fullpriced game just doesn’t give you a full experience anymore with all downloadable content and other in-game types of purchases. It also helps that I’ve never had a car, so upgrading to the next has never been a topic to talk about when I think of it. I’ve never really felt deprived, eventhough I did not live a life of luxury (relatively speaking).
“Once I started spending my own money, I realised my mom was right.
We do have food at home.“– Internet Memes
The only increases I’ve seen as I started earning money, was spending on social events (euphemism for beers) – which has switched more to spendings on events with my child – and the money is spent very well! Spending money on experiences for me has always been money better spent than stuff, but this is dependent on your personality (or generation? Millenial problems..). The one big inflated experience that comes to mind is our wedding, it was really something extravagant when comparing it to my historical spending, and maybe if I’d been more aware of personal finance at that time, I might have wanted differently; but at what cost? It was a once in a lifetime experience for sure.
When I look around, I do see people moving upwards as soon as they can, and they do look more impressive in life than me – I can’t deny it. I have not completely passed the don’t equate material things for success exam yet, I am human after all. I don’t feel the need to follow suit (yet), but I probably should enjoy spending a bit more (I just hate shopping). Having a decade long career with no stability or job security, I am grateful to have saved some of my money everytime I am unemployed – but this brings with it the risk of lifestyle inflation once I do get that ‘permanent’ position (one day), we’ll see!
How has your life inflated over the years? What would you have done differently or what was the best inflation you ever decided to have?
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Keep up with your spending and find out if your life style is sustainable!
Check out this download or find it at the downloads section.