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Is Lifestyle Inflation Making You Poor?


I recently had a friend in town and we were discussing how life has become so expensive.


We couldn’t believe that it was only a few years ago that you would have spent only half of what you’re spending on an average weekend now. We assume that it’s just that the cities we live in that keep getting more and more expensive, but that’s not always the case.


Sometimes it’s because we’ve fallen into the trap of lifestyle inflation.

Lifestyle inflation: as your income increases, so does your spending—thus making it difficult to get ahead on your finances and saving because you’ve just found more ways to spend it.


Lifestyle inflation isn’t a bad thing. You work hard for that money, you should be able to upgrade your lifestyle without feeling guilty. However, it does become a problem when you find yourself still stretched thin at the end of the month because of frivolous spending.


It can be tricky to avoid falling into the traps of lifestyle inflation, but the three tips below can help you manage it.


Update your savings plan(s) after each raise.

The trap most people fall into is the excitement after getting a raise and they don’t immediately increase their savings rate. It feels like a reward—that’s true but make sure you’re putting a little more of that extra cash into savings before you start thinking about upgrading your life.


Create a new budget to account for the extra income. Your first priority should be to put more money toward any debt you have. After that, put some of the additional income toward your savings, either in a retirement plan or a rainy day fund. The goal should be to put at least half of each raise to savings.


Less is more.

On a last minute beach trip with my boyfriend, instead of going to a fancy restaurant we opted to make pizzas together and drink wine we had bought from a local winery. When we added up what was spent on the night, it was much, much less than what we were used to paying for a night out and we were reminded that life can still be cheaper than we make it.


Just like that night, I’m reminded there are plenty of cheaper, and even free, activities that have slipped out of my usual rotation. If you’re like me, make an effort to bring these activities back into your routine as a way to cut back—without feeling like you’re missing out.


Be mindful of what brings you joy.

One way to make sure you don’t fall prey to overspending is to stay focused on the things that will bring you the most happiness when must spend money on them. You naturally spend more money as you make it, and that’s okay, but make sure that what you’re spending money on is something you actually enjoy, not just something you’re buying to buy.


For many people, spending on events rather than physical things is what brings them the most joy. Make a list of those must-do activities and allocate your extra money to saving for them each month. By letting yourself spend more on the things you truly want, you won’t feel like you’re depriving yourself of a hard-earned raise.


While avoiding lifestyle inflation may not always be easy, putting a plan in place now will be beneficial to your future financial health.

Last Updated: October 11, 2016
About the author

    Alexandra Hoeflicker

    Alex is a Tucson-raised, Austin-based brunch aficionado. She enjoys a solid cup of coffee and browsing used record stores.