Latest posts by Kumiko Ehrmantraut (see all)
- Is Gap Insurance Worth It? - September 16, 2021
First, let me ask you: What causes you the most stress in life? Work? Finances? Trying to measure up?
If you’re like most Americans under 50, your answer was one of these top three stress-inducers.
We work long, crazy hours away from the people we love – sometimes at jobs we despise – so we can make more money, so we can buy all the things, so we go into debt, so we can impress all the other people, so we have to work longer, crazier hours at a job we despise. *Deep breath.
And we call this living.
Let me tell you, this is not living! This is not the real American dream.
This materialistic mindset is the enemy of our culture, and no demographic is immune – upper, lower, middle-class, men, women, doctors, high school graduates – we all deal with the lie of “we deserve more stuff.”
And THAT is where lifestyle inflation takes root. We can discuss finances for days, but until you embrace the reality that:
- You don’t have to be controlled by stress
- Your worth isn’t found in things
- You can CHOOSE what makes your life happy
…then all the talk about budgets, plans, savings, and goals will fall on deaf ears.
But you’re here. Which means you are thinking ahead, trying to make changes, wanting to claim your life as your own. That's one of the first steps.
What is Lifestyle Inflation?
Not so long ago, I was a spender. I was in debt, working jobs I didn’t enjoy, spinning my wheels and feeling like my life would never improve.
Until I made the conscious decision to change the way I spend money.
But I soon learned making that decision was not a one-time thing. Even though I had a budget and a plan, once I started getting debts paid off and bringing home a little more money, I started facing the problem of lifestyle inflation.
Likely, you have too.
Suddenly, there’s a little extra left over at the end of the month, and you start to buy into the lie that you deserve to be able to spend that extra money. Now you can afford to shop for new clothes, buy a new pair of shoes, hire a housekeeper, go out to lunch, get a message. Now you can afford to upgrade – your phone, your cable services, your car, your house.
And just as suddenly, there’s nothing leftover at the end of the month – again.
THIS is lifestyle inflation. We have more, so we spend more. When you live like this, it is virtually impossible to get ahead, no matter HOW much money you make.
How Lifestyle Inflation Sneaks Up on You
As you get out of debt and advance in your career, it’s natural to want to make some changes to the way you live. And there is nothing wrong with this!
But what we mistakenly refer to as “quality of life” is really just an inflated lifestyle. This forces us to live paycheck to paycheck, remain in debt, and stay running on the hamster wheel that’s taking us nowhere.
Sure, we may have more stuff to impress others (does it really?), but we are still working the same long, crazy hours at the same unsatisfying job we can’t afford to leave because now we owe even more.
This is the very definition of stress.
We’ve all done this. In our 20’s we were content to live in studio apartments and ride our bicycles and eat ramen noodles. But five or ten years later, we buy into the lie that we “need” 4-bedroom houses, $26,000 cars, and daily visits to our favorite coffee shop. We want to eat sushi every week, buy brand-name clothing, get unlimited data on our phones, and take yearly cruises to the Caribbean.
All the things that once seemed like luxuries have now become our necessities.
These “necessities” that supposedly make our lives better are putting a strain on our relationships, our health, and our future. Often, we are sacrificing our own families and our own happiness just to meet the expectations of others.
So, how do we avoid falling into the trap of lifestyle inflation?
Tips to Avoid Lifestyle Inflation
1. Decide what your life goals are.
Oh, this is such a crucial first step! You cannot achieve a goal if you don’t have one! And without a goal, no matter what area of your life, you just end up wandering aimlessly.
Do you want to start your own business? Stay home with your children? Retire early? Buy a home? Travel? The question is: “What do I want out of life?” (Not “What do other people expect from me?” or “What do other people have that I envy?)
Step one is so important. It is the foundation of who you are and what your life can be!
For me, I wanted the freedom to stop living paycheck to paycheck. The freedom to have more time with my son. The freedom to pursue what I was passionate about. (Hence, The Budget Mom!)
I had to take a good long look at what I perceived as needs and wants. I had to see how they were derailing me from achieving my real goals.
I learned that lifestyle inflation – spending more every time I made more – was the enemy of my goals. I had to make a plan and learn to be content.
2. Make a Plan to Achieve Your Goals
Starting a new career, paying off debt, getting a promotion, getting married – these are all things that have a way of forcing you to look at your finances. So, take these opportunities to do it right.
Take step one – deciding what your life goals are – and write down the steps it will take to get you there. What debts need to be eliminated? How much money do you need to save to achieve your dreams? Make a specific, detailed game plan that will help you stay focused on your goals.
The key here is to figure out how you are going to reach these goals.
Once you see it on paper and outline a plan, you will realize what many others don’t: the time to do this is now.
Most people live under the fallacy that there is plenty of time. “I can save for retirement later.” or “I’ll pay off my debts when I make more money.” These lies we tell ourselves keep us from achieving our dreams.
It may shock you to know that nearly 60% of the people in this country can’t manage to save $1000. Even people earning 6-digit incomes struggle with this.
Lifestyle inflation is the number one reason. These people have not made a plan toward reaching their financial goals. They delude themselves into thinking there’s always more time. So little by little, the money disappears with nothing to show for it but more debt.
3. Make a Budget
The foundation of financial freedom is ti have a successful AND realistic budget.
Every time your income changes or you pay off a debt, you need to reevaluate your budget. Calculate the real change to your income, after you factor in taxes.
To save money and avoid lifestyle inflation, your budget needs to zero out every month. This means every penny of your income is allotted to a specific payment, envelope, or savings goal.
Nothing will help you combat the temptations of lifestyle inflation more than your budget. It's going to be your road map to freedom, and your daily reminder of what's important.
4. Don’t Throw Your Money Away – Throw it at Your Goals
Once you have calculated the changes to your budget, you must decide what to do with the temporary excess. “Temporary” because you don’t want to start thinking of it as extra income.
Instead of inflating your lifestyle, increase your contributions to the things that really matter to you- your hopes, your dreams. Add this excess where you most need it to accomplish your financial goals.
First, throw that money at your debt repayment. After you are out of debt and have eliminated all those monthly payments, you’ll have even more money freed up to focus on saving and investing.
For those who have a hard time sticking to a budget, remember that setting up an automated savings plan is a great way to help you stay on track.
5. Avoid Making New Bad Habits
With this new income, don’t be tempted to upgrade the things that aren’t important. Don’t start new spending habits you can manage without.
In fact, try to do just the opposite. Find ways you can cut your spending even more and add that money toward your goals. Shop resale, cook from scratch, find free entertainment. Pretty soon, saving money will feel like a game. And as you watch your debt decrease and your saving increase, you’ll feel great about winning this game!
Now, this doesn’t mean you can’t ever spend your money! Just give hard consideration to the long-term effects of your spending.
Ask yourself, “Five years from now will I be glad I spent a little extra money on weekly coffee?” (Almost certainly not!) But “Will I be glad I took the kids to the ocean?” or “Will I be glad I learned to play the guitar?” Choose simple things that bring lasting joy.
Invest in experiences that create lifetime memories and enjoyment rather than stuff that just creates clutter.
6. Seek Out Like-Minded Friends
If the people you regularly hang out with don’t have the same goals you do, it’s very easy to fall into the trap of envy. You start to feel like you need to own what they own or go places they go, even if it doesn’t fit with your lifestyle goals.
Instead, seek out friends who have the same desire to live simply. These people will help you achieve your goals, and they’ll have fun with you along the way!
What You Really Deserve
Lifestyle inflation is one of the most common ways to stay trapped in stress. When you make more money, you start to think you deserve more – and the truth is, you do! – but not more stuff.
You deserve more quality of life, more freedom, more chance to live out YOUR dreams.
Having things does not lead to freedom. Buying things, despite what our culture tells us, does not bring us lasting happiness. Shopping should not be entertainment. Shopping is not therapy. Buying stuff adds to your current stress and keeps you working just to pay off debt.
Having goals and a budget to achieve those goals is how you start to make your money work for you. And that is the path to freedom and real happiness. THAT is what you deserve.
