Control Lifestyle Inflation Before it Controls You.
*****************************************************************This is a guest post from video blogger Vik Tantry. He runs the personal finance site Kanjoh.com, and has some pretty wicked videos uploaded there - I highly recommend checking them out. A fun (and different) way to learn!
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It is fascinating how our tastes change. Back in college, I used to happily eat cereal and Ramen Noodles three meals a day. Once I graduated, I was actually able to afford real meals at fancy restaurants. I was earning more, and my spending had increased substantially. This is lifestyle inflation: when your spending starts to catch up with your income.
Lifestyle inflation is dangerous because it can decimate our savings, and it is encouraged by our consumer-driven society. Saving isn't sexy, but it is always exciting to buy the next fancy gadget. When our income goes up, it is very easy to spend it all quickly on things that "we've wanted for a long time but never could afford." Lifestyle inflation often creeps into our lives slowly and steadily. We start eating out a little more, and spending more on clothes. We take fancier vacations and buy more expensive cars and furniture. Before you know it, our increase in income isn't covering our increased costs!
After a few months of working, I realized that I was not saving nearly as much as I would have liked. I also realized that my "improved lifestyle" did not make me substantially happier than when I was in college. I tallied up my expenses and identified several areas of spending that I could do without. I realized that I didn't need to buy new clothes and shoes so often, and I could go out to dinner a little less. After all, I didn't need these things back in college, so why would I need them now?
When faced with lifestyle inflation, take a few days to adjust. Consider your increase in income first and foremost as an opportunity to save more. Then, take a few hours to sit down and prioritize. Make a list of things you've wanted and figure out which ones really mean the most to you. Once you have defined your priorities, stick to them. This way, you can save and invest while still spending money on the things that are truly important.
Controlling lifestyle inflation is more about having the right values than anything else. However, its important to not take it to the other extreme. A balanced approach to saving and spending will maximize both your happiness and your financial stability.
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Editor's Note: One of the best ways to avoid falling in this trap is to up your 401(k) or savings whenever you get a raise or promotion! Getting in this habit will not only help you save more over time, but you'll never miss any of it because you'll never see it ;)
Labels: career, guest post, inflation, life, money management
posted by J. Money at
8:49 AM
11 Comments:
This is a very good article! We are planning on moving to a much nicer part of town where expenses will be high. We have been focused on paying off debt and saving for a down payment. We will need to have a semi-strict budget in place for when we move. I'm going to have to avoid the temptation to buy everything like some of the other soccer moms.
Great post! Something I haven't seen mentioned on many PF blogs. Definitely something to consider!!
I have definitely seen this in my life. This last year I have really been scaling back, and honestly, other than a few small things, I don't miss living large all that much. Once everything gets back under control, I will have to keep an eye out for spending creep.
Yeah, my man Vik def. has his head on right. Been meaning to write something myself on lifestyle inflation, but he spit it out so perfectly! Glad you guys are getting something out of it, it's always a nice refresher ;)
Great food for thought. I have been thinking about how my life in New York was so much more expensive to maintain as opposed to living in London, a more expensive city overall. NY for me was about the expectations of a lifestyle. At the time, I worked in fashion and was expected to spend a lot on clothing and going out.
It's sooooo hard to avoid though. I work hard, I got a raise, I deserve that new miter saw, followed by that air compressor nail gun combo kit, followed by that table saw. I swear I'll use them for DIY projects!
The key to controlling inflation in the long run is for the authorities to keep control of aggregate demand (through fiscal and monetary policy) and at the same time seek to achieve improvements to the supply side of the economy.
I've been thinking about how trying too keep up with technological advancements create a form of lifestyle creep. *Sigh*
this was really insightful...i don't know if i've ever heard the term "lifestyle inflation" but it's so true. i will have to apply this principle to my life...thanks for sharing.
Yup, we never said it would be easy ;) The trick is allowing yourself to splurge every now and then (like for all those DIY projects you'll be certain to get done Mr. Tom) and then get back onto that main "normal" course again. I definitely can't say I've perfected this myself, but it does get easier as time goes on....unless it's because I haven't been getting any raises/promotions anymore? hmmm...
My favorite piece of finance wisdom: "Live like a broke college student as long as you can."
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