When I was in college I drove an old 1998 car that had racked up a ton of miles. It had a sunroof but it didn’t work and the CD player didn’t work either. Yet and still, the air came on each summer, and the car got me around town so it was somewhat reliable.
When I graduated college, I felt this little voice inside my head urging me to treat myself. I worked hard after all. I was going to land a better-paying job and could leave my ‘broke college student’ lifestyle behind (or so I thought).
So, I quickly upgraded to a newer car and booked a cruise for that summer.
While there’s nothing wrong with treating yourself from time to time, it opens the door for lifestyle inflation to creep in.
What is Lifestyle Inflation?
Lifestyle inflation refers to increasing your spending (and thus, lifestyle) when your income increases. Common examples could be upgrading your home when you get a better job or a raise, or even going to out to eat more once you start making more.
The problem? Lifestyle inflation often leads people to overspend. Others tend to inflate their lifestyle even when they truly can’t afford it.
When I got my new car, I financed it so it became an extra bill I had to pay on top of my student loan payments. While I did just talk about how my husband and I bought a house partly because we wanted to (and could afford to) inflate our lifestyle, it would not be wise for us to inflate every area of our lives as well.
Over the years, I’ve done quite a few things to avoid lifestyle inflation in certain areas so I could focus on my true goals. Here are 5 ways to beat lifestyle inflation.
1. Set Clear Goals
Your goals are gold. Have you ever heard that saying? I might have just made it up right now, but it’s true. Your goals are super important and set the tone for how you decide to live your life.
This is why when it comes to setting financial goals, you want them to be crystal clear and specific. It’s much harder to give in to lifestyle inflation when you know exactly what your goals are.
For example, setting a vague goal like ‘wanting to live a better life’ opens the door to considering all kinds of options. Buying a new 4k Ultra television or financing a vacation could possibly make you feel that your life is getting better or improving.
On the other hand, if you set a clear goal like ‘becoming debt free and sending your two kids to college debt free’, you’ll have a better idea of what it will take to reach those goals and how to align your spending.
Suddenly, certain purchases and decisions that might inflate your lifestyle won’t really contribute to your end goal so you can easily shut them down.
2. Stop Trying to Keep Up With Other People
Wanting to keep up with the Joneses is probably the number one factor that leads to lifestyle inflation. When you think about it, there will always be someone with more than you. It makes no sense to compete for the best and newest of everything, especially when you don’t really even want or need it.
The same can be said for my recent decision to buy a house. Instead of looking at everyone else’s home and trying to live up to their lifestyle, I followed my own path and chose a home that I could afford that would fit the lifestyle I wanted.
Plus, we saved a ton of money by doing things our way and don’t feel house poor at all!Make sure you plan ahead if you want to inflate your lifestyle. Click To Tweet
3. Spend Less Than You Earn
One of the best ways to beat lifestyle inflation is to spend less than you earn. Track your income and get on a budget so you know what your expenses are and can plan accordingly.
In order to spend less than you earn, you need to keep your entire lifestyle simple yet comfortable. With this method, you won’t be spending money just because you can afford to.
Once you start tracking your expenses and sticking to your budget, you’ll be able to use any excess money to go toward your financial goals.
For some, spending less than you earn can mean something drastically different.
Here’s an example. For a new doctor, it could mean putting that dream home purchase on hold and living in an apartment until you pay off your six-figure student loan debt.
For others, it could mean cooking more meals at home so the kids can do extracurricular activities and the parents can add to the emergency fund.
4. Identify and Avoid Impulse Purchases
Impulse purchases are the worst and can often lead to lifestyle inflation. Impulse purchases aren’t planned and are made as a result of pure emotion which isn’t good.
When you make an impulse purchase, you often aren’t thinking about your goals or budget. You may even regret the purchase later or spend a longer period of time working toward your financial goals.
Instead of relying on temporary happiness, take steps to avoid impulse purchases so you don’t get sucked into lifestyle inflation.
When you have some extra money, it’s easy to justify buying things you don’t need. Your first step is to identify your impulse purchase triggers. Once you know what they are, you can avoid those types of items or stores when you need to focus on improving your life, not filling it with clutter.
To increase your rate of success, you can also talk to your partner, family member or a friend to hold you accountable so you avoid impulse purchases and stay on track.
5. Use Income Increases to Further Yourself Along the Way
Once you set clear goals and get on a budget that makes you feel good, what reason is there to spend more money inflating your lifestyle? If you can settle for a comfortable and affordable lifestyle that allows you to spend less than you earn, commit to sticking with it long-term.
As a result, you can use income increases like raises and side hustle income, tax refunds, and bonuses to further yourself financially.
In other words, keep living how you have been when extra money and windfalls come through. You won’t really miss the extra money that you weren’t expecting or didn’t plan on using anything.
So get excited about putting that extra money toward your debt, retirement accounts, emergency fund, etc.
Inflating your lifestyle is okay every now and then so long as it’s carefully planned for. When taken to the extreme, lifestyle inflation can hold you back from reaching your true financial goals. If you want to be financially secure quickly and financially independent someday, it’s important to avoid lifestyle inflation at all costs.
Have you ever felt tempted to spend more after earning more? Do you ever use any of these tips to beat lifestyle inflation?