How to Avoid Lifestyle Inflation: 9 Key Ways

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Lifestyle inflation

Managing your personal finances is an important task. However, lifestyle inflation can make it more difficult to keep your finances on track.

Luckily, there are ways to work against lifestyle creep through intentional decision making.

Let’s find out more about what lifestyle inflation is and how you can avoid it.

What is lifestyle inflation aka lifestyle creep?

Lifestyle inflation happens when you allow your spending to gradually increase over time. It usually happens when your income increases over time and you increase your spending to keep pace with that rising income. With that, your income is growing but the amount you are able to save never increases substantially.

Unfortunately, lifestyle inflation can easily sneak up on you if you let it. It might start with a simple lifestyle upgrade like the convenience of a takeout meal or the luxury of a brand new car. But it could quickly spiral into an expensive lifestyle that you can barely afford.

In the long term, lifestyle creep leads to stagnant savings and difficulty reaching big financial goals. You might struggle to save for what truly matters to you while enjoying the convenience of things that don’t truly make you happy.

For example, you might not have the savings to fund your dreams because your budget is saturated with items that you don’t necessarily need.

Most of us will fall into the trap of lifestyle inflation without careful decision making surrounding our spending. It is natural to crave convenience and comfort. But don’t let it come at the expense of your long term goals.

How to avoid lifestyle inflation

Now that you have a better of what lifestyle creep is, let’s talk about how you can avoid it.

1. Be aware of your spending choices

The first step is understanding that lifestyle inflation is a real threat. Unfortunately, it is very easy for lifestyle inflation to sneak up on you because it often starts with small choices. With time, small spending choices can add up to a very expensive lifestyle.

As you make decisions surrounding your budget, consider the threat of lifestyle inflation. When you are thinking about adding a new expense to your life, think about the reasons behind the expense.

Is it an essential item? Or will it contribute to lifestyle creep without adding a significant amount of happiness to your life?

2. Do the math of your raise

When you get a raise if any size, your first instinct is likely to celebrate with a splurge. After all, you’ve earned it!

Before you decide to upgrade your lifestyle, take a closer look at your raise. Sometimes a modest raise might not give a dramatic boost to the cash you have available to spend.

Take a minute to calculate the increase in your take-home pay with the raise. Some quick math will reveal exactly how much extra income you’ll be working with.

3. Treat yourself - within reason

Everyone deserves a treat now and then! But don’t go overboard.

Although short term treats can be fun, don’t let them derail your long-term goals. For example, a spa day now and then might be a fun splurge. But a regular spa appointment could be cutting into your budget too far.

4. Set aside a percentage of your income for splurging

You should absolutely spend enough on what really matters to you. However, consider the reality of your budget before taking your splurge too far.

If you get a raise, decide how much you are willing to spend on “fun”. As you think about your increased lifestyle spending, take some time to determine how you want to use this new money to reach your long term financial goals. Find a balance between the two that works for your lifestyle and your financial goals.

5. Add big changes to your budget gradually

When you finally get a raise, it can be tempting to upgrade several areas of your life at once. This is especially true if you’ve been waiting on this raise for a while.

But it is a good idea to avoid jumping into several new lifestyle expenses at once. Instead, add in new expenses one at a time to test things out.

If something truly improves your happiness or quality of life, then keep it up. If you find that a new expense doesn’t elevate your happiness, then slash it.

6. Find friends with the same goals

Social scientists have found a link that connects our closest friends to our own personality and decision making. That means that keeping up with the Joneses is a real phenomenon! You can be easily tempted to overspend if all of your friends are.

The best way to combat this is to find friends that don’t make you feel like you have to spend more just to keep up. Of course, you shouldn’t cut out people you care about over their spending habits.

But consider having a frank conversation about your financial goals and why they won’t see you stretching your budget to ‘keep up’.

It is absolutely possible to enjoy the company of friends without blowing your budget. A few fun ideas include going for a walk, heading to a free museum, or hosting a dinner party.

7. Set up automatic savings

The easiest way to save is to automate it. With that, you won’t have to make the decision to save on a regular basis. Instead, you just have to make the decision to save once and the power of automation will take care of the rest.

Once you have the take-home amount of your raise calculated, consider your savings goals. If you want to make progress easily, then have your intended savings transferred directly into a separate account. Then you can spend the extra that is leftover in your checking account without having to consider your savings goals.

You’ll know that the savings are being taken care of. With that peace of mind, you’ll be able to enjoy your extra splurges without worry.

To help, here's a simple pay raise calculator.

8. Don’t take out any debt

If you find yourself taking out debt to afford a new luxury, then you’ve likely taken your spending too far. Although you might be able to afford the monthly payments, that doesn’t mean that you can truly afford something. Consider this carefully before taking on new debt.

You don’t want to trap yourself in a paycheck to paycheck cycle due to new debts. In fact, you might want to put your extra income towards paying off old debts!

9. Set up a budget

A budget can help you monitor your spending and help you stay on track. If you want to avoid lifestyle inflation, implementing a budget is the most effective option.

Through tracking your expenses and sticking to a budget, you are less likely to allow your spending to get off track.

Take advantage of our many budgeting resources when you are first learning how to build a budget that works for you. Not all budgeting strategies will work for you, so explore your options before getting started.

The bottom line

Lifestyle inflation can easily derail your long term goals. The trap of short term gratification in the form of luxury convenience can delay your plans to get out of debt, save for a down payment, or retire.

When you are adding new luxuries to your life, weigh the benefits against your long term goals. In most cases, you’ll choose to pass up the convenience of a new lifestyle upgrade in favor of your long term financial stability.

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