My financial philosophy developed out of a desire to make the most of my meager wages. When I started my professional career after gradating college, I made $12 per hour. Thankfully, I didn’t have any debt — or paying all my bills and saving a little money each month would have been impossible.
Still, it was hard enough to pay for my living expenses and save, too. Because I made so little, I was focused on spending as little as I could so that there’d be enough money each month to go around.
Since that time, however, I’ve advanced in my career and even quit working for someone else in order to become my own boss, running my own business. I make significantly more than twelve bucks an hour now, and my focus has shifted from gotta spend less! to how can I earn more?
Earning more each year is a good position to be in, and I’m thankful. Every time I bump my earnings up, I make it that much easier for me to achieve my financial goals and reach financial success.
But it also leaves me vulnerable to a phenomenon that has wrecked the potential wealth of many, many people: lifestyle inflation.
What Is Lifestyle Inflation?
Lifestyle inflation occurs when you earn more money — and subsequently spend more money. It happens when you earn a raise or increase your rates, and then treat yourself to more meals out, a bigger home, or a newer car.
And it is really, really hard to beat this kind of inflation. Especially when you’ve spent four years living like the broke college kid you were while earning your degree, and then spent another three years after that continuing to live like a broke college kid because you graduated in a recession, your salary sucked, and you had to keep expenses low in order to meet savings goals.
Once you finally “make it,” you want to celebrate. You want to start living like an actual adult. And adults have fancy home decor, eat at nice restaurants, and enjoy expensive vacations. Right?
Right — when those adults have also fallen victim to lifestyle inflation.
You don’t need to enter your 30s making over $100k and continuing to stock your pantry with nothing but Ramen noodles. That’s not being financially savvy; that’s being cheap.
Here’s the thing: there’s a right way and a wrong way to give in to lifestyle inflation.
How to Give In to Lifestyle Inflation the Right Way
Lifestyle inflation isn’t always a bad thing (although it can get ugly really quick if you’re not careful).
For me, I’ve given in to lifestyle inflation in ways that provide me some sort of high value in return. Here are a few examples of what this looks like —
Buying Better Food: When I started earning more money, I started making an effort to eat better. I stopped buying items that allowed me to make one grocery store run per month (because they would last that long) and instead transitioned to a once-per-week or as-needed trip to the grocery store. Now, I try to only buy whole foods.
Going to the store more often does cost me more money than trying to survive off grains with zero fruits and veggies. But it’s also healthier, and maintaining my health provides a huge return on investment.
And I still stick to my local grocery store instead of driving to the nearest Whole Foods. I still use cheap staples like rice, beans, and pasta as part of my meals, but it’s not the only thing I eat at every meal.
Prioritizing Splurges and “Treats”: When I first started working a full-time job, I made so little that going out to the movies once plus buying two six-packs of beer was just about all I could afford in discretionary spending for the week. The rest of the time I had to entertain myself for free — no shopping, no other events, no going out (Thankfully, all my friends were in similar situations and we were all happy to hang out at each others’ houses instead of spending an expensive night out at bars and clubs.)
I try to stay positive and look for the best in every situation, but let’s be honest. Sometimes, being that limited in what you can do really sucks.
So when I started earning more, I did more activities and attended more events that cost money. But I gave in to this kind of lifestyle inflation the right way: I prioritized what was most important to me and continued to sit out the rest.
Movies and nights spent drinking out multiple times in a month? No thanks. I preferred buying backpacking equipment to go for weekend trips and only going out once, maybe twice a month — but to a really nice place where I wasn’t worried about the price.
And if I wanted to spring for a few upgrades, like a new piece of furniture? That money came from somewhere else. There wouldn’t be any splurges that month, because I was treating myself to a big, one-time purchase instead.
Doing lifestyle inflation right means a lot of either/or, not and.
Stopping the Constant Worrying about Money: The biggest way I gave into lifestyle inflation when I started earning more was actually a pretty good thing for me in the long run. I stopped agonizing over every single purchase and every dollar spent. Instead of looking purely at price tags, I learned to start thinking in terms of, “what kind of value will I receive from this?”
I still keep a budget and I track my spending, but I don’t stress over the time last week when I was out running errands and decided to swing by Starbucks to buy an espresso. I don’t buy things just because they’re on sale or spend tons of time looking for coupons. (Admittedly I forget my coupons at home more often than not.)
I stopped spending energy on finding ways to cut spending, and instead started to spend my energy looking for ways to maximize my earnings.
Do I spend more today than I did three years ago? Absolutely. Could I cut back on that spending and save even more? Sure.
But I choose not to cut my current spending because I know that every dollar I spend goes toward something I highly value and have prioritized over everything else I could have purchased. I allowed some degree of lifestyle inflation because I was able to do so while still saving/investing over 40% of my income every month — and I know that making little cuts and trims to my budget, at this point, won’t yield more than maybe 1% more of savings.
Lifestyle inflation is certainly something to guard against as you earn more money. But that doesn’t mean you can’t ever allow your spending to tick up a notch if you’re earning more and more.
The key is to ensure that spending is on things that you value — and purchases that leave you feeling truly happy, healthy, fulfilled, and satisfied.
As always, the good rule of thumb for spending stands here:
Spending on stuff is typically the wrong way to enjoy some lifestyle inflation. Spending on experiences and relationships is probably the right way.
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