How to Avoid Lifestyle Inflation

by CashTime Loan Centers

Have you ever heard someone say, “The more you make, the more you spend?” (your mom, maybe?) For many of us that is unfortunately a very true statement, with the result that we never really make any forward progress financially. Our debt doesn’t get paid off, our savings doesn’t grow, and too many of us end up buying slightly newer/better versions of most of our “stuff” which is too often charged to a high interest rate credit card, thus perpetuating the status quo. If this sounds all too familiar to you, we’ve got some hot tips for you on how to avoid this “lifestyle inflation” and still enjoy life.

1. Have a realistic budget.

It is almost impossible to get ahead financially if you don’t know your numbers. If you don’t have an accurate picture of your income and expenses, you don’t really know where your money is going, and reaching your financial goals will be difficult if not impossible. Not knowing your numbers makes you susceptible to lifestyle inflation. When you track your spending by using a budget, you’ll get a clear picture of exactly where your money is going, and it can be a strong motivator to help curb impulse spending.

2. Try spending less when you start earning more.

This may be counterintuitive for many of us but think about the progress you can make when you start living this way. Instead of spending that raise or bonus before you even get it (hello, Clark Griswold of Christmas Vacation fame!), try doing the math to see exactly how much is going to end up in the income category of your budget. After accounting for increased taxes and expenses, the positive effect of a raise is often less than we first think. Once you calculate the real change your increase makes to your overall budget, determine where that extra money is needed most, and you might find that maintaining your current lifestyle and using the increase to either pay down debt faster or build a stronger emergency fund or savings account is what’s in your best interest.

3. Consider funding experiences instead of possessions.

If your savings are in good shape, you’ve got a solid emergency fund, and you’re either debt free or well on your way, why not start a vacation/memory making fund? Material things decrease in value over time, but enjoyable experiences are priceless. Talk it over with your family, and odds are they’ll be on board for spending more time together doing things that bring joy to everyone and involve making memories you’ll all look back on fondly. That can include taking trips together or taking an art, music, dance, yoga, or other type of class together. Maybe the entire family can learn to play an instrument, and you can start enjoying family concerts instead of spending cash on dinners out. The possibilities are endless, and much more fun than buying a new bigger screen TV that you could probably do without.

4. Automate your savings.

You probably already pay most, if not all, your bills online using automation. Why not automate your savings, as well? When you do, you may not need to use a budget (although we still highly recommend that you do!) or track every expenditure to save money. When you automate your savings, the hard part is done for you. Once that money goes into your savings account with every paycheck, you must make a concerted effort to transfer funds out of savings in order to spend them, which will make you much more aware of your spending habits and help curb impulse buying and help you keep lifestyle inflation at bay.

5. Be a maverick.

Resistance is not futile if it helps you get ahead. Spending is easy, everyone does it, and society encourages us to spend more, more, more — and when we get a raise and start making more, we sometimes convince ourselves we “deserve” to spend more. Choose to be different, choose to go against the norm, choose not to spend. Ask yourself what you really want more, that shiny new object you could probably live without (especially since you already are living without it), or the opportunity to take a vacation you’ve saved for rather than put it on a high interest credit card. Would you rather have a TV that’s a few inches bigger than the perfectly good one you’re already watching, or would you rather not be paying 20% interest on your credit card bills every month? Would you rather drive a new car and make $500+ payments every month for the next five to seven years and pay more in full coverage insurance, or could you continue driving your current car and put a little aside every month for maintenance and car care while bumping up your retirement savings a little more?

6. Keep the big picture in mind.

The best way to avoid lifestyle inflation is to keep the big picture in mind and learn to appreciate what you already have. Sometimes less is more, especially if it helps you build wealth that will result in financial stability now, and a more secure, enjoyable future for yourself and your family.

No matter which of these tips you adopt as your own, taking control of your money and fighting against lifestyle inflation will help you reach your financial goals. You work hard for your money, and it should work hard for you. When you tell your money what to do, it must obey. Your money should serve you, not the other way around. By formulating a solid plan for any increase in your income, you ensure that your money works for you.