HOW TO AVOID LIFESTYLE INFLATION
It happens to the best of us: with a new job, a raise, or a bonus, comes a “reward,” or a celebration, or a new pattern of spending. You may want to move into a larger home, buy a nicer car, or begin eating out more.
Because now you can afford it…right?
Wrong. These “rewards” come at the price of your financial freedom! And they are classic examples of lifestyle inflation.
Lifestyle inflation, or lifestyle creep, occurs when you increase your spending in line with your income. While in the abstract, this may sound reasonable or even responsible, it can have serious consequences–especially because it often goes unnoticed.
If you continue to increase your spending with every raise, you will never save enough money to get off the consumer hamster wheel.
Here are 5 ways to avoid lifestyle inflation, or lifestyle creep.
1. When you receive a raise or a bonus, put the excess money toward savings or debt repayment.
This is the simplest step. Calculate the difference between your old paycheck and your new one, and place the excess in savings if you have no debt, or toward debt repayment. This allows you to treat the excess as money not “at-hand,” so you are less likely to spend it!
2. Live day-to-day as though you are making less money.
The best way to avoid lifestyle inflation is to pretend an increase in salary never happened. This doesn’t mean treat your financial life without purpose—quite the opposite.
Instead, live day-to-day as though you are making less money, or on your previous salary, so you are saving most of your money or paying off your debts more quickly. This allows you to increase your savings rate by leaps and bounds.
3. Ignore what your coworkers and peers are doing.
We spend most of our day-to-day life around coworkers and peers who, generally, make around the same money as us. This also means that as the years go on, salaries and bonuses increase.
While your coworkers and peers increase their spending as their salaries rise—better cars, fancy meals, extravagant experiences—you must ignore them, and live your life more frugally. It gets easier to do once you realize they are living paycheck to paycheck, and you are not.
4. Think about how you lived when you were living on your lowest salary.
My first two full-time jobs out of college were awful. I made $30,000 per year in a high-cost-of-living city, and was constantly stressed out. But back then, I was smart with my money out of sheer necessity.
I rented a room in a crappy apartment, rarely ate out for dinner, limited outings with friends, and tracked my spending obsessively. This allowed me to, over several months, sock away enough money in savings to move and get ready for grad school when the time came.
So why do I tell you to think about a similar time in your life, if there ever was one? Because it shows you how capable you once were of living on less. You did it once—you can do it again.
Financial freedom is waiting for you on the other side!
5. Cultivate beer tastes on a champagne budget.
Wait…what? You have that saying wrong.
No, I mean it! When you are making more money, it is so easy to develop expensive tastes.
There was a time in my life when I was finally making good money, and I decided that I could “afford” certain luxuries…even while I was in six-figures of student loan debt! It was an insane approach, and I am glad I stopped myself before it got too out of hand.
One way I was able to bring myself back to earth was to cultivate “beer tastes” on my new “champagne budget.” Effectively, this meant normalizing my existence back to the status quo—aka, the life I grew up with!
There is nothing wrong with living frugally—in fact, it’s the best way to live, as I see it—and by cultivating tastes for the less-finer things in life, even while your salary increases, you will pay back your debts and increase your savings rate exponentially. 🙂
So there you have it: 5 ways you can avoid lifestyle inflation, or lifestyle creep, when you start making more money. I hope this was helpful for you!