Real examples of lifestyle inflation, where we’re spending more than we used to in incremental upgrades as our income has increased.
If you had told my ultra-frugal, 20-something self that I would eventually have examples of lifestyle inflation to talk about in my 30s?
Well, I wouldn’t have believed you.
But guess what?
Lifestyle inflation has infected my wallet…just like most people’s.
As our income has increased over the years, so has our spending.
Am I still frugal at heart? You bet.
Do I spend more now than I did when I was single, or married with no kids? You double bet.
Let’s dive into the exciting and costly world of lifestyle inflation – what it is, examples, and then how to avoid the worst of it.
What is Lifestyle Inflation?
Lifestyle inflation is when you choose to upgrade parts of your living costs – creating a more expensive spending baseline – as your paycheck increases.
Instead of seeing a gap between your spending and your increasing paycheck (allowing you to save more money), your spending rises to meet your new pay rate…sometimes so much so that you feel like you’re still living paycheck to paycheck (even though you’re earning more money).
And it can really sneak up on you.
That’s because keeping track of extra big purchases you’ve made – like a new car, or a water heater, or that video game system your husband had his eye on – is easier than seeing the total effect of a bunch of smaller upgrades.
But people tend to let loose in many little ways as income increases – like spending extra at the grocery store, getting nails done twice per month instead of once every other month, eating out more.
When you let loose in many categories at once, then you create a spending snowball effect that quickly grows in size. Suddenly, you don’t know where all of your extra income is going to.
So, what are some examples of what I’m talking about?
Examples of Lifestyle Inflation
Lifestyle inflation happens when you want to up-level your standard of living, and you’re willing to spend more to do so since you’re earning more money.
Here are some examples from my own life and others, where the choice was made to spend more than what was needed in the past, to be satisfied.
1. Upgrading Your Living Situation
Many of us start out by getting a roommate or two when we “leave the nest”.
Either because you go to college and live in the dorms (I lived with three roommates for two years of college), or because you get an apartment and can’t quite afford the rent off of your first-job earnings.
At some point – typically when income increases allow – most people choose to go roommate-free.
My own personal experience? I had roommates in college, then moved in with a roommate in my post-college apartment in Chestertown, then lived with a roommate in an apartment in Florida.
After that, I lived on my own for two years, before getting engaged and then married.
Other ways people upgrade their living situation when they earn more:
- Get a two or three-bedroom apartment instead of a one-bedroom
- Buy a home
- Buy a home in a nicer neighborhood
2. Choosing Increasingly Higher-Costing Cars
You can read all about my beater car history.
I’ll include a chart of what it has looked like, below.
Nice progression on the lifestyle inflation meter, right? Of course, I did start out buying extremely inexpensive vehicles to begin with.
But clearly, as my income has increased over the years, so has my spending on the vehicle I choose to drive.
3. Buying More Brand Name Foods
Perhaps you used to buy generic brands as a default, and you now buy brand name products as a default.
This could easily add 10-25% to your grocery bill costs.
4. Buying More Organic Foods
In my early 20s, when my household income was less than half of what we earn now? You wouldn’t catch me buying an organic food. Honestly, I just felt that I couldn’t afford them.
Now that we’re debt-free, have a sizable retirement fund, and both earn a good living, I can confidently confess that most of our meats are organic. I also try to purchase some organic fruits and vegetables (mainly, the dirty dozen).
5. Increasing Your Clothing Budget
You might’ve held onto clothes for what seemed like decades when your income was much less.
But now, not only do you buy a new outfit or two for each season, but you sometimes even splurge at higher-costing stores.
That’s lifestyle inflation!
Psst: here's how to change your style on a budget.
6. Tacking on “Extras” at Restaurants
We don’t eat out much. But when we do, it looks a bit different than when I ate out in my 20s.
In my 20s, I was happy to buy an appetizer as a main dish, or just buy a main dish with water and no dessert.
Now? We might tack on an appetizer to share, and I (gasp!) might split a slice of cheesecake at the end.
7. Adding to Your Drive-Thru Order
You might’ve been satisfied with a certain drive-thru order at your favorite place years ago.
But maybe over the years, as your income has increased, you’ve added onto it and increased your spending for the same amount of satisfaction.
- Increasing the portion size
- Getting extra sides to the order
- Tacking on a dessert
8. Turning Luxury Self-Care Services into Weekly Routines
Over the years, perhaps you’ve added manicures, pedicures, and blowouts to your weekly or bi-weekly spending list.
Whereas before – fresh out of college, on starter pay – these self-care line items were seen as luxuries.
9. Increasing Vacation Frequency
Before, maybe you felt lucky to get away once a year on a week-long vacation.
And over the years with more disposable income? You might have increased how often you travel. Perhaps including several long weekend getaways, or adding a week onto your “normal” weekly annual vacation.
10. Furniture Upgrade
Maybe you kept your first-apartment furniture for ten years or so, and then decided that it was time to upgrade to a “proper” set (especially now that you have a bit more income to do so).
For us? While we still have the furniture we bought used in our 20s, we definitely did upgrade from a queen to a king-sized bed.
11. Increased Gift Budget for the Holidays
Do you find yourself spending more on the holidays to get that same satisfaction that you used to get when your income (and spending) was much lower?
My husband and I used to give each other Christmas gifts that probably cost $30 or less. Now that our income has grown, we’re both comfortable with spending $80-$100 on each other. Definite lifestyle inflation by choice!
How to Avoid Lifestyle Inflation
As you read through the example lifestyle inflation list above, and mentally noted some of your own examples, you might have figured something out.
That is, some lifestyle inflation choices you actually are happy about and want to keep. These are upgrades in your life that mean a lot to you, have brought you joy or ease, and you want to choose again and again.
But other lifestyle inflation spending? Well, you’d rather not be doing.
Here’s a few quick tips on how to avoid lifestyle inflation on those items you want to bring back under control, moving forward.
1. Use Rewards with a One-Time Cost
We’re all human, and we tend to want to reward ourselves when our incomes increase (like when you get a bonus, or a merit raise, or a promotion).
There are ways to reward yourself where you just pay a cost once – such as going out for a meal at your favorite restaurant, or taking a weekend trip. And then there are ways to reward yourself that have continual costs associated to it.
- Upgrading to a new car with a higher car payment each month
- Buying several new wardrobe pieces that will now require dry cleaning costs
Keep rewarding yourself, just try to do so in a way that costs you one time, not locks you into higher costs moving forward.
2. Automatically Soak Up the Extra Income
As your income increases, automatically sweep it into either:
- Your retirement (if you’re not maxing out your plans)
- Your savings account
- A financial goal
Then, continue living on what you were earning before.
3. Keep an Eye on Your Percentages
Do you know what percentage of your money you save, and what you spend on needs vs. wants?
You’ve likely heard of the 50/30/20 budgeting rule. It basically says that you’ll be financially fine if you spend:
- 50% of your money on needs
- 30% of your money on wants
- 20% of your money on financial goals
Keeping your eye on these percentages as your income increases will help you to keep lifestyle inflation in check.
Yes, if you still spend 30% of your money on wants and your income increases, then you’re still going to be inflating your lifestyle (because you’ll be spending more than before).
For example, let’s say you earn $4,500/month. And you get a pay increase that takes you to $4,800/month. Before, you could spend $2,250 and stay at 50%. When your income increases to the $4,800, you can spend up to $2,400 and still have your wants (30%) and financial goals (20%) covered.
Make sure you’re covering your bases with financial goals and keeping your monthly obligations under a certain point by calculating your percentages several months after an income increase.
Hint: you don’t need to stick to these exact percentages. Just figure out what your percentages for these three categories are, and then ask yourself if you’re okay with them.
You’ll find (or already have figured out) that once you’ve increased your standard of living, it’s harder to go back to what you were used to before.
In fact, I often say that losing your income hurts in proportion to your lifestyle inflation – meaning, the more your lifestyle has been upgraded, the more it’s going to have to come back down if you were ever to lose your employment or take a pay cut. Just something to think about as you become aware of lifestyle inflation in your own life, and figure out whether or not you want to cut it back some, or keep it.
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