So what is the big deal then? Why shouldn’t we enjoy life’s luxuries as we make more money and can afford it? The truth is you can’t afford it. If you are between the ages of 18-60 years old then you cannot afford lifestyle inflation. Any extra income we bring in should be put towards savings, an emergency fund, a Roth IRA, your kid’s college fund, and any other savings goal you might have. When we raise our lifestyle to the income that we make we decrease the amount of cash that we are able to stockpile. My advice to you is to setup a comfortable budget with the amount of income that you currently have, including some entertainment and fun, and stick to that budget as you increase your income. You will slowly go from having $200 left at the end of the month to maybe $2000. Imagine the amount of progress you can make on your financial goals by being able to put $2000 a month into those accounts.
So why do I bring up lifestyle inflation? I need my own advice. My wife and I are currently suffering from Lifestyle Inflation. When we first got married we started out on one Income at $31,000 a year. My wife had just finished school and was transitioning into teaching full time. Since then I have received two pay raises and my wife has received a long term teaching contract each year. We have doubled our income since we were first married. Our first few months we lived off of $2,300 a month and now our monthly spending is almost double that. Why? Lifestyle inflation. We have added the luxuries of gym memberships, vacations, Netflix, pets, new clothes, newer condo, new hobbies, and buying better foods. Some of these increases are healthy, and good for our overall health, but there has to be a point where we stop increasing our spending or we will never accomplish our financial goals.
Although we are young and can make up time for our foolish ways, we could look back 30 years from now and deeply wish that we would have saved more. Our future has many expenses ahead and increasing the gap between our monthly expenses budget and our income is so important. The more we save now the more luxuries we will enjoy later. I encourage you to heed my warning and avoid Lifestyle inflation by maintaining your budget as you increase your income.
Pic by Yogendra174
9 comments:
I think lifestyle inflation is justified to a point. If you are saving for retirement and not using credit cards then little luxuries are deserved.
It just seems this can easily used as an excuse too.
Niki,
Good Point. One of the benefits of getting your finances in order is you can afford more luxuries and you don't have to endure the bare bones lifestyle anymore. The problem occurs when you keep inflating to the point where your money is stretching too far, and if anything were to happen again, you would go deep into debt, because you could no longer afford your lifestyle.
Matt,
Great post! You're absolutely right about lifestyle inflation! I can't believe how easy that trap is to fall into...
I feel like I work really hard to avoid it, but yeah, even I can justify weekly sushi nights.
It's time to get serious about lifestyle inflation. Did you make that phrase up? I dig it!
Thanks David W. We can easily justify sushi nights, beers with the guys, concert tickets, vacations, and hobbies. Some of these things are awesome and value adding to our lives, but we need to make sure we don't inflate too much.
There's no reason to live like you only make $30,000 per year if you make $100,000. One of biggest motivators to earn more money isn't so you can put it away to use at 65, but so you CAN have more wiggle room & luxuries now. Yeah, some people go overboard, but seriously, not changing anything when you're going from $200 extra to $2000 extra per month? Please. That's unreasonable.
There's no point in reducing your quality of life now to be a rich old person. What people should be striving for is balance: a fulfilling and enjoyable life now, and a comfortable retirement of the same quality later.
Hithatsmybike,
Well said! Balance is the ultimate goal. My point was it can be tempting to increase your standard of living every time you get a raise, and that will cause lifestyle inflation. Enjoying life's luxuries is encourage within reason.
My husband and I are young. I graduated college a year ago, and the hubby is planning to go back. This topic is something we've been thinking about constantly as we carve out our financial path. Good food for thought.
Adoseoftic- thanks for your comment. Look forward to hearing more about your financial path.
@hithatsmybike
If you control lifestyle inflation you may not have to wait until 65 to retire. Why buy a bunch of toys while you are working and don't have time to play with them anyway. Why not use the extra money to retire in your 50s or even 40s?
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