Avoiding Lifestyle Inflation

Take a minute to remember your life when you were 20.  Were you in college?  Or maybe just a couple years into an entry-level job?  Whatever you were doing, you probably did it without a whole lot of money.  You might have had a couch, but it was probably from Goodwill – or maybe it was a futon?  You may have had a car, but it was probably a junker.  You certainly had clothes, but they were probably from a discount store or a thrift store.

License: Creative Commons image source
License: Creative Commons image source

Were you happy?  Did you spend your days feeling deprived because you didn’t have a designer wardrobe, a 2,500 square foot house and an SUV?  Probably not.  You most likely had great times with friends, ate lots of frozen pizzas, and thoroughly enjoyed your life, even if you were living paycheck to paycheck.

Now think about your current life.  If you’re a decade or a few removed from the just-past-high-school years, you’re probably spending a wh
ole lot more money than you were then.  And some of it is probably very well spent (a lifetime of frozen pizzas isn’t really the best idea – bumping up your food budget as your income allows is a good use of money).  But what about the rest?  Is it all money well spent, helping you achieve your long term goals?  Or is some of it being spent just because you see other people spending on similar stuff?  When you buy a car, do you look for the best value on a vehicle that will get you where you need to go, or are you looking for a status symbol?  What about housing?  Are you living in a house that meets your basic needs but doesn’t eat up a huge chunk of your income?  Or are you house-poor because you stretched your budget to buy more house than you really need?

Entertainment is another area where people tend to “upgrade” as time goes by.  Remember what you used to do for entertainment when you we
re 20?  It probably involved friends, rented movies, Frisbees, the local sandwich shop and maybe some cheap beer.  There’s nothing wrong with enjoying the finer things in life every once in a while.  But if you’re having trouble getting ahead financially and you find yourself spending a lot of money on fancy restaurants and movies and luxury vacations, remind yourself of how happy you were at one time to just sit under a tree with a book and a PB&J sandwich.  The things that made you happy when you had no money will still make you happy now – it’s just a matter of changing your expectations.

It also helps if you don’t strive to keep up with colleagues and friends who spend a lot of money.  Maybe they earn more than you.  Maybe they’re in debt up to their eyeballs.  Maybe they’re working 70 hours a week to afford their lifestyle.  Maybe they have different long term goals than you.&nb
sp; Spending money to impress other people is a pointless endeavor because most people won’t notice anyway.  And spending money to try to match your lifestyle to other people’s is also pointless, because there are just too many different variables from one person to another.

What is Lifestyle Inflation?

“Lifestyle inflation” is the term used to describe the way that people tend to increase their consumption of all sorts of things as their income grows.  Some things do need to be upgraded as time goes by, especially when life circumstances change – if you have children and a spouse, you probably don’t want to still be living in the one bedroom basement apartment where you lived when you were 19.  And things like life insurance – that you didn’t really need when you were young and single – start to become necessities as you get older.  There are plenty of things that aren’t necessary at all though, b
ut start to seem that way because they fit into the image people have of what it means to be an adult.  If the furniture in your living room was good enough when you were earning $25,000 a year, why is it not good enough when you’re earning $40,000?  Judging that furniture based on its actual usefulness and condition is a better plan than assuming it needs to be upgraded just because you can technically afford it now (even if “afford” means “spend all of your money”).

If you’re trying to get ahead, save money, and stick to the financial plan that will enable you to reach your long term goals, paying attention to lifestyle inflation – and consciously avoiding it – is a very good idea.  Don’t worry about how other people spend their money.  Create your budget based on what you actually need and your own goals and plans, not based on what you earn.  Just because you get a raise and suddenly have an extra
$500/month in income does not mean that you need to find ways to spend an extra $500 each month.  Increasing your spending to match your income just puts you on an endless work-earn-consume treadmill that doesn’t actually increase your happiness level at all.

Instead, maybe you can spend an extra $50/month and save the other $450.  That $50 will still give you a little bit of flexibility and “fun money” but it’s also a small chunk of your additional income.  For the remaining $450, why not channel it automatically into a savings account, investment account, or retirement fund?  Out-of-sight, out-of-mind is a good plan here.  If you were happy with your old income, you’ll be just as happy with your new income – you won’t notice the extra money that’s being sent to savings each month, and you’ll get to enjoy the small percentage of your raise that you get to spend on whatever you like.

Your future self will thank you.

About the Author: Frugal Babe is a mid-30s American wife and mama who has been careful with money since childhood and loves the flexibility that her frugality has given her. She is the face behind the Frugal Babe website and a contributor to the CareOne Debt Relief Services blog, a community that provides debt consolidation and money-saving advice.

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