What is lifestyle inflation, and how can you avoid it?

Over the years, I have seen my income rise pretty significantly as I transferred out of the part time working world to a full time Police Officer. As a teenager, I was making anywhere from $5-$10 per hour and in addition even had some walking around cash from tips as a busboy and pizza delivery driver. The older I got, the more my income would go up and the higher the pressures got to start spending more money. This is very common among adults who change jobs, get a raise, or maybe even an inheritance. It seems to be human nature that once more money is put into our hands we want to spend it as quickly as possible. This is what is considered lifestlye inflation.

Lifestyle inflation is also one of the biggest drawbacks that holds us back from achieving financial independence. As our income naturally goes up so does our spending because we get the idea in our head that now that we make more money we begin to deserve certain things. It seems that growing up as a teenager or a college student we are completley content with not having a lot of things. This is most likely attributed to the fact that at that age we simply don’t make a lot of money. You will hear countless people recalling the old days when they lived in a cheap apartment, eating ramen noodles, driving an old car, or not even owning a car.

I’ve talked to people who recall these times and often say they were some of the best times of their life because life was simple. They didn’t have countless possessions, large amounts of debt, or the stress that a inflated lifestlye can bring on. They lived within their means because they simply didn’t have any other choice. 

I’ll use my situation as an example. 

Throughout college I lived at home and generally worked 1-2 part time jobs at any given time. I always felt I had enough money on me since my expenses were low which led to a lot of dinners out and spending my money on items I thought would make me happy like motorcycles, cars, and electronics. At the age of 21 I got hired as a police officer and my $10 an hour job now jumped to $23 per hour with benefits. I remained living at home for about a year and a half keeping my same 13 year old car and fighting the urge to just go out and buy a new one. I ended up purchasing a home at the age of 23 and settled for a house I really liked for $127,000 despite being approved to buy a home for $200,000. 

During this time I kept my expenses low and always strived to save money and avoid buying things I didn’t need. Over the years my income grew to a point where I am right now, around the six figure mark, but I still keep my expenses the same as if I made half that amount. Doing this has allowed me to save thousands of dollars more per year and has been the driving factor in reaching my recent goal of saving $250,000 at the age of 28.

Growing up, I was able to see lifestyle inflation at work with a family I knew well. The parents had modest incomes, drove old cars, and didn’t buy things they couldn’t afford. Over time the couple started making more money and larger purchases began to happen. All of the sudden this simple family now had a swimming pool, motorcycle, boat, fancy cars, began taking expensive vacations, and at the same time also began taking on loads of debt. This family felt as if they had achieved the American dream and because of that they now deserved to make all of these purchases they couldn’t make at a younger age. This story is not uncommon and I’m sure you know someone who has gone through this exact type of situation.

The goal of today’s article is to get you thinking about how your lifestyle has changed since your income has increased. Have you had the urges to buy that new car, bigger house, or other toys like a boat, RV, motorcycle, etc. Has your closet begun to overflow with clothes you hardly ever wear, or your house filled up with useless junk you bought for really no specific reason. Maybe you plan on getting a raise soon, or starting a new career with higher pay. Now is the time to think about what you would do with that money, and I highly urge you to think about saving any extra. Over the past few years, every time I have gotten a raise I have it automatically deposited it into my investments so that it appears to me that my pay hasn’t changed at all. That way I just keep the same lifestyle and continue to watch my savings grow. 

Let me know how lifestyle inflation has effected you, or ways you have been able to combat it. Thanks for reading

-Matt-