When I was in graduate school, I made a whopping $550 a month from my part-time job, maybe a little more if I took other people’s shifts. I was rolling in the dough, you know what I mean? 🙂
Surviving on that amount of money was tough. While my parents were generous enough to pay for my rent, everything else was up to me, including utilities, food, and books. Discretionary income and splurging, when it did occur, was more likely on $2 taco happy hour specials than anything else.
Since then, my income has increased and, by default, so have my lifestyle expenses. The uniform of t-shirts and jeans are not acceptable at my current job, so clothing expenses are but one way my expenses have increased – not that I mind a great deal, because I like clothes.
On the other hand, I do fear lifestyle inflation too much. Personally, keeping my discretionary expenses low and controlling lifestyle inflation is something I’m very aware of, and I think I do spend too much money on “fun” things. Apparently, I’m not normal – many people have much more to spend on discretionary things than I do!
Discretionary Income Spending
According to these graphs by the Motley Fool, I should have anywhere between $14,000 and $19,000 in discretionary income to spend per year, based on my income and age. Discretionary income, according to these graphs, does not mean food, clothes, or healthcare – your own definition of discretionary income may be slightly different.
I have to say, my own opinion of discretionary income is radically different from this. I would say about half, or $6,000, would be considered discretionary spending in my budget annually. That’s because I don’t consider retirement savings as part of discretionary income; that’s a non-negotiable saving that comes before any “fun money.” That’s also because I just don’t have that much money laying around at the end of the year. $14,000 for discretionary income? Not unless I’m not paying my student loan bills!
Establishing Your Lifestyle Inflation Tipping Point
Many people may disagree with me. For people who’ve gone from making $20,000 a year to $60,000, increasing their lifestyle may be worth it to them. Some people can justify leasing brand new cars every 2 years, while others choose to spend their discretionary income elsewhere.
While there’s no one right way to spend your discretionary income, here are some things to keep in mind before justifying new ways to increase your lifestyle expenses:
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Personal Capital lets you see all of your accounts in one convenient place. Sign up now for free.- Do these new expenses make me happy? If you’ve received a raise and want to go backpacking across Europe with your spouse, that might be a great way to spend your discretionary income. Making memories with a loved one is something you’ll treasure forever, as opposed to a pricey cable package.
- Will these new expenses improve my life? Many people swear by exercise classes, or meal delivery services, and can justify their expense. I’ve attended some life-changing exercise classes and, while I haven’t made them a regular part of my lifestyle, I occasionally allocate some discretionary spending to them sometimes. Maintaining a healthy lifestyle will certainly improve your life, and will save you money by keeping you healthier over a longer period of time.
- Will it make my life easier? Some things are worth learning to do the hard way, but sometimes it’s just easier to hire out jobs to someone else. Unless you love to spend time outdoors maintaining your backyard, you might consider hiring a lawn service to take care of regular maintenance. This can save you time to pursue more lucrative endeavors, like a side hustle, or let you spend more time with your family.
Everyone’s definition of discretionary income is slightly different. While many people do increase their lifestyles as their income increases, there are ways to do it reasonably without spending a lot of money. I’d like to know: how much would you say your discretionary expenses amount to every year? Also, how has lifestyle inflation impacted you, for better or for worse?
So lifestyle inflation is pretty much the worse thing in my life. It has been a real struggle because for a long time my wife and I were on the same page financially (both huge spenders of every dime) but this lead to a lifestyle that we cannot maintain and so now we are surrounded by debt and I have over the last year changed many many things about spending money. However my wife is still in spending mode so the more money I make it just kept getting spent. To fix this i have a separate account for all my “extra” money that I make that is only used for paying down debt and investing. Life has been a lot easier since this happened.
It sounds like you’re starting to get a handle on it, Tyler, but you’re right – it does take a significant amount of time to get over being in that spending mindset. It’s a whole mind shift! Good luck to you and your family!
Life style inflations effects us all. When you find things you want to spend discretionary money on… I always try to seek out a way to have my fun things pay for themselves by getting actively involved with them also as a business.
I don’t waste money on tv/cable/movies and things because I love being outdoors and gravitate towards things that promote a healthy lifestyle.
It is still a challenge I know most of the folks I hang out with and friends I doubt have much savings.. that are easily spending $20K a year on fun stuff.. travel , trips, spas, clubs, video games and technology.. I couldn’t survive if I was spending money like that..
I know! That’s what always surprises me about studies showing people spending $10k or more a year on discretionary income (not including food or utilities). If I spent $10k extra a year, I would be in the poorhouse.
Then again, this reinforces the fact that we don’t know how people are spending their money. They could be living dangerous on credit cards. That’s why keeping up with the Joneses is such a bad idea! Thanks for your comment, Tim!