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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I have a younger sister, who is still a college student taking up B.S.I.T. Starting earlier this year, she got a full time job by working as a V. A. team leader in one company based in New York and. Since then, I have observed her lifestyle inflation, she always bought lots different bags, clothes and shoes almost every month. She always eats at the restaurant and lastly, she just upgraded her scooter which was really expensive. I understand that maybe she just overwhelmed that she has a job even if she is still studying, but I told her to start saving as early as now.
Yikes! Definitely sounds like she needs to take advantage of making a little more and save.
Battling lifestyle inflation is hard, at least it was for me. There’s nothing wrong with “inflating” your lifestyle when you get your first “real” job, but we should be weary about doing it with every pay raise. I know try to pretend that I didn’t get a raise and just stash it in my savings. This is working pretty well, at least for now.
Absolutely. When you constantly upgrade your spending, that’s a recipe for a bad financial situation. I’ve only moderately bumped up my budget throughout the years; most of my earnings increases get earmarked for investing.
I am a big fan of buying things that support an athletic and healthy lifestyle. I can almost always justify buying new gear for rock climbing, cycling, running, swimming, skiing, snowboarding and surfing… but wow I can also look and see how much money I have wrapped in all my gear and I think wow I could have invested a lot more had I not done that.. but then I was what would do otherwise??
I don’t pay for gym memberships since the world is my gym.. But I manage to allow it to happen and justify the purchases to promote my good health and active living.
I am good about keeping my other costs down I seem to think. I don’t go out buying new cards, or bags and clothes (unless for running, cycling, swimming or skiing)
Can anyone else relate to things like this? How do you manage it or do you always seem to justify it for a better you?
I can definitely relate — my biggest purchases have been on travel and outdoor (backpacking, running, biking, swimming) equipment. I don’t need to justify these things because that’s what I prioritize in my budget. My other spending categories are minimal, because I want to be able to buy what I need to participate in things I LOVE to do more than anything else.That’s aligning your spending with your values 🙂
I need to align my thought process to be more like yours in this regard.
Better to know I’m not the only one to see it this way.
I term what you’re talking about “lifestyle increases” rather than “lifestyle inflation” because it is deliberate rather than mindless. And yep, we’ve increased our lifestyle in some ways over time (and decreased it in some ways) through careful decision-making.
I’m not one to say stuff=bad and experiences=good though because stuff CAN translate to experience as long as you use it. I’ve owned a terrible laptop, for instance, and the experience of owning a reliable laptop is night and day different even though they are both just things! Likewise if an outfit or whatever makes you feel wonderful and confident, it’s likely a worthwhile purchase.
Oh, I love that! I guess it’s just semantics but it really does make a difference in how I think about it. Thanks for sharing!
And I agree, not all stuff is bad. I just use “stuff = not worth it” as a general rule of thumb especially when I’m tempted to grab an impulse buy of something I don’t really need 🙂
I think we all indulge in an inflated lifestyle once we start making more money. I’ve done it from buying clothes, to even eating out more and thinking an expensive restaurant tab won’t hurt as much, financially.
It’s a very fine line to walk. A little bit of that, every once in a while, I don’t think is harmful. But when it becomes mindless and a habit where you think you deserve those things because you’re making more, when you could easily do well with less, is not good.
I used to have a lifestyle inflation too, I bought what I want, went to different parties and bought a new gadget because for me, this is my money and I earned it. But now, everything changed, I preferred to stay here at home and I only went out every weekend to go to the grocery.
I’m glad you’ve curbed your spending a bit! Your net worth thanks you 😉
One of the things I wondered about after I retired at age 51 and later took on a paying opportunity of passion for a few years was would I spend more than my retired lifestyle budget because of all the new money coming in (lifestyle inflation). Other than the additional cost to commute and the occasional work related costs the answer was NO. It seems when you live a balanced smart frugal life that includes like you say some items that you value even though not exactly extreme frugal worthy you can stay on course. I have a sustainable frugal lifestyle that as you includes some small indulgences. Great article.
Prost!