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How to avoid unhealthy “lifestyle inflation”

As a lot of new college graduates enter the job market, most tend to experience a frugal lifestyle. (Think ramen noodles, IKEA furniture, that sort of thing.) However, once they land a rather decent paying job, things start to change rapidly — which I call “lifestyle inflation.” Soon, many can’t imagine sharing an apartment with a roommate or sharing a ride to work, even though they may have done so just a few months prior. Now, they want to own a house, get a brand-new car, buy some nicer clothes, and more expensive luxuries in general. With a quick increase in earnings, it’s easy to slip into a sense of being entitled to all the things you couldn’t get when you earned less.

Lavish HomefrontBe careful of feeling entitled to a lavish lifestyle too early

However, this can instantly lead to making poor financial decisions right out of the gate — and doesn’t even factor in other elements like student loans and debts! The core problem is that this attitude can lead us to overspending without realizing it — with our increase in income paling in comparison to the lifestyle changes we desire or feel entitled to.

Some of the ways increased income quickly leads to lifestyle inflation

Here’s a handful of ways in which many people waste money, especially during an increase in income:

  • Paying excessive or unnecessary fees to get things we want
  • Paying excessive or unnecessary interest to get a luxury more quickly
  • Racking up too many subscriptions (Netflix, Spotify, Hulu, these add up fast!)
  • Upgrading to the newest model of phone/tablet/laptop every year
  • Failing to return unwanted or unneeded items that were purchased on impulse
  • Not bothering to compare prices or search for discounts

Man in SuitLifestyle inflation: spending too much, saving too little

According to US News, the average retirement account balance for someone under 34 in 2017 was $24,728 — which means most of us aren’t saving nearly enough. Most should aim to have at least up to 10 times income saved for retirement by the time we hit our mid-sixties. Plenty of us are making enough to save… we’re just not making saving a priority.

Steps to make saving a priority when your income increases

  1. Consider increasing your 401k/IRA contributions immediately. If you never see the extra money from the time you get a raise — you’ll never miss it! Plus, it adds up over the years, which will pass by before you know it.
  2. If you’re already maxing out retirement plans, then consider making an extra mortgage payment (assuming you’ve cleared up any credit card debt first.) You are building more equity in your home and shaving years off your mortgage, bit by bit.
  3. To hold yourself accountable, write down what you plan to do with that bigger paycheck. If you have a plan in your head it’s just a wish. If you write it down, it becomes a plan — even if its just a big red number on a whiteboard you see every day. Maybe it’s your current credit card balance or auto loan balance. It’s a reminder that any extra dollars you have can be used to keep beating that debt down to a pulp. It’s a mental exercise to remind you of what’s important and what’s not — so you keep your focus and not spend it on the next shiny toy you “need.”
  4. Use technology as an advantage. Find an app like mint, e-money or YNAB to track your spending to really see where the dollars go. Some feel that making a budget is restrictive, so they completely avoid it all together. The truth is that making a budget gives you more freedom and can save you time in the long run. Essentially, it frees us to spend our allocated dollars on the things we want, without impacting our savings plans.

Celebrating SuccessWhen you get that raise, take charge of your spending

Frankly — even millionaires don’t know where all their money goes. It’s crazy, and life is crazy too. But if YOU don’t take charge of your spending… no one will. Good luck — and be thrifty, my friends!

July 2019


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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