In simplest terms the concept of lifestyle inflation refers to a person’s spending going up as their income goes up.
Some lifestyle inflation may be unavoidable but it’s a good thing to keep it in check as much as possible. Otherwise you end up living paycheck to paycheck and having little or no money let over to pay down debt, save for retirement and use for other investments.
When a person is at that point, with no money left to create a cushion, life gets really stressful.
Moments of Lifestyle Inflation
We can be drawn to increase our lifestyle at any point in life. As I see it though, there are five instances when we are most susceptible to increasing our spending. Here’s how it often works.
1. After college graduation at the first real job
Remember that first paycheck at your first real job? Awesome, wasn’t it? After years of being a poor college student, I couldn’t wait to go out and spend it.
It finally feels possible to get your own apartment and not bunk with your college buddies anymore. After all, their disgusting habits are growing tiresome. It’s funny…the habits didn’t seem so strange a few short months ago prior to landing that job.
With the busyness of life increasing, eating out becomes more attractive. Clothes suddenly don’t look as expensive. That updated smartphone with unlimited data plan sure would be nice to stay connected at the new job.
2. When you get a raise
A little lifestyle inflation kicked in after landing the first real job. But oh boy, watch out now. The raises are coming and it’s time for the bigger ticket items to get upgraded.
And it all starts with the car. Bye, bye old beater…hello brand new _________. (Fill in your choice and never mind the car payments…you can afford it now.)
You will also be upgrading to a two-bedroom apartment to “spread out” and have some office space. Plus, the additional closet will help for all the great clothing and other trinkets beginning to accumulate.
And don’t forget the spending that comes now as you feel compelled to circumnavigate the globe attending all the weddings of your college friends. “Oi…will they ever stop,” you wonder.
3. When you get married
That two-bedroom apartment you’ve been living in simply isn’t going to cut it with two people collectively merging their possessions. So it will be time for that starter home – the three-bedroom castle with living and dining rooms, a larger, eat-in kitchen, garage and at least .5 acres of land…just to keep a buffer from the neighbors (because you hated living so close to people in the apartment).
And of course, you can’t consider renting the house. That would be throwing money away. Getting a mortgage would be the best route to take so at least we are building up some equity each month.
Once in the house though, you realize your stuff doesn’t fill all the space. So what quickly follows is another couch (so we can have friends over), an entertainment center (to fit that flat screen TV your spouse brought into the marriage) and a cabinet so all the girlfriends can ooh and aah over the china and crystal they bought you at the wedding.
4. When you have kids
Of all these stages of life, lifestyle inflation is least avoidable when kids come along. Ask any parent how much stuff kids need and they will just roll their eyes. The answer is A LOT!
Two kids and their stuff will still fit into your three-bedroom house. But after awhile, you’ll be frustrated the office space room was sacrificed to become a kid bedroom. Suddenly using your laptop at the kitchen table doesn’t seem all that appealing.
Plus the kids are noisy and peace and quiet is hard to come by. Sure would be nice to have an office again…or better yet a finished basement whereto the kid’s playroom could be banished.
And then you get THE NEWS…another kid is on the way. That four-dour Accord you just paid off is no longer going to work. Time to upgrade to a new mini-van (with payments again). Or better yet a Suburban. That way the 30-something couple can maintain their cool factor.
5. Anytime there is external pressure to conform
As luck would have it, you’ve done pretty well despite the increase in spending. You are now in upper management at your job and living in a trendy, swim-tennis community. But the retirement fund is behind and you haven’t started saving for the kid’s college. You vow to do better but then realize that…
…you are the only ones on your block sending your kids to public school.
…most in your community hire their own landscape company.
…the new job you are pursuing will require a whole new wardrobe and different vehicle to drive clients around.
…your friends Facebook pictures sure make that Disney vacation look fun.
These pressures to conform, to fit in and to keep up with others, continue to drive your spending forward.
Solutions to Lifestyle Inflation
So how do we stop this? I’m not entirely sure we can, not 100%.
But maybe we can slow it down by…
1. Being aware. Understanding what lifestyle inflation is and knowing when we are most vulnerable to spending increases is a start.
2. Being disciplined. The word “No” has to enter our vocabulary at some point if we are going to limit our spending.
3. Being content. Nobody has everything. We shouldn’t attempt to become that person who uses spending to find happiness.
4. Being future-thinkers. Our spending habits are mostly focused on the now. Dreaming about and setting goals for the future will shape our minds to limit spending in the present.
Spending increases are going to come. It’s a part of life, unless you choose to live off the grid. The real danger is that lifestyle inflation becomes a habit that you cannot break. Commit today that you will fight this monster that keeps our futures from being winning ones.
Questions: At what time in your life did you feel most vulnerable to lifestyle inflation? How are you combating lifestyle inflation? How do you resist the external pressure to conform?