Sometimes ago, I wrote a post on the laws of wealth generation. In that post, I explained how Parkinson’s Law or the law of Lifestyle Inflation works.
Recently, someone referred to that article, and I decided to review the post. It was during that review that I remember a real-life story that obeys the law of lifestyle inflation.
Many years ago, I had a neighbor; he had a meager income and a large family to support. Things barely get enough for him. And things go on like that for years. One day he told me he wanted to sell land he had bought a long time ago, which had appreciated significantly.
We sat down together and mapped out various investment plans for him. But, our plan became short-lived when he surprised me about a month later that he is moving into a new and bigger apartment. A few days later, I stopped by at his new place only to find out that he had quickly upgraded all his furniture and electronics.
He began to eat out with his family and going on travel tours. And soon, he began to work even harder and longer to be able to maintain his new lifestyle.
While there’s nothing wrong with treating yourself from time to time, it opens the door for lifestyle inflation to creep in. This happens a lot, and my neighbor’s story is just one out of millions out there.
What Is Lifestyle Inflation?
Lifestyle inflation refers to increasing your spending (and thus, lifestyle) when your income increases. Typical examples could be upgrading your home when you get a better job or a raise, or even going to out to eat more once you start making more.
The problem is that lifestyle inflation often steers people to overspend. Others are likely to inflate their lifestyle even when they really can’t meet the expense.
Over the years, I’ve learned quite a few ways to delay gratification and avoid lifestyle inflation in certain areas so I could focus on my real goals. Here are seven ways to beat lifestyle inflation.
1. Have Crystal Clear Goals
Your goals are gold.
That is the reason when athletes are going for competitions; the phrase ‘Go For Gold’ is often used.
Your goals set the tone for how you decide to live your life, and that is the reason they are super important.
Your financial goal should be specific and crystal clear. Set goals make it much tougher for you to give in to lifestyle inflation because you already know exactly what your goals and targets are.
Also, you must be cautious of vague goals. These kinds of goals often lead you unknowingly into lifestyle inflation. For example, setting a goal like ‘wanting the people around you to feel your worth’ is not financially wise. That opens the door to considering all kinds of options. It goes like this. You buy an expensive car, a large house, a new 4k Ultra television. Or maybe you finance a vacation when you don't have enough assets to pay for it.
A clear goal would be to attain financial freedom. Becoming debt-free and sending your two kids to college debt-free might be another one. Having clearly stated goals gives you better ideas of what it will take to reach those goals. They will help to align your spending.
Having these clear goals, you'll be less likely to make purchases that might inflate your lifestyle. You'll find it easier to avoid those that don't contribute to your end goal.
2. Stay Below Your Earning Radar
It’s disturbing to see people who spend all they earn and more. That kind of overspending keeps millions of people in the rat race.
One of the best ways to beat lifestyle inflation is to spend less than you earn. Track your income and get on a budget, so you know what your expenses are and you can plan accordingly.
To effectively stay below your earning radar, you want to keep your entire lifestyle comfortable yet straightforward. With this technique, you won’t be spending money just for the reason that you have enough money to.
When you track your expenses and stick to your budget, you’ll be able to use any surplus money to move toward your financial goals.
3. Stop Trying To Keep Up With Other People
We all admire the model on the magazine cover, the celebrities on the television and those ads on the billboards are captivating. I have spent all my childhood year doing just that.
Wanting to keep up with the Joneses is probably the number one factor that leads to lifestyle inflation and ultimately, debt.
Here's the thing. There will always be someone with more than you have in every area of your life. That's a fact. The good news is that you are far above millions of people around the world. It makes no sense to compete for the best and newest of everything, especially when you don’t need it.
4. Identify And Avoid Impulse Purchases
Impulse purchases are the worst and can often lead to lifestyle inflation. Impulse purchases aren’t planned and are made as a result of pure emotion. Decisions made on emotion are rarely good ones.
When you make an impulse purchase, you often aren’t thinking about your goals or budget. You may even regret the purchase later or spend a more extended period working toward your financial goals.
Instead of relying on temporary happiness, take steps to avoid impulse purchases, so you don’t get sucked into lifestyle inflation.
When you have some extra money, it’s easy to justify buying things you don’t need. Your first step is to identify your impulse purchase triggers. Once you know what they are, you can avoid those types of items or stores when you need to focus on improving your life, not filling it with clutter.
To increase your chances of success, talk to your partner, family member, or a friend. They can hold you accountable and help you avoid impulse purchases and stay on track.
5. Know Which Deal Is Good For You
Black Friday Sales: 50% Off, Get 30% back on all items, 45% Off this Christmas. These are examples of what triggers the buying decisions of millions of people.
Most people make purchases because the discount sounds like they have a good deal but never consider its implications on their financial goal. Discounts are great, but that is only when it is in line with your financial goal.
6. Use Income Increases To Further Yourself Along The Way
When people get incremental increases in income, they often inflate their lifestyle. Spending those increases might indicate not having a plan or financial goal.
Once you set clear goals and get on a budget that makes you feel good, what motivation is there to spend the extra money inflating your lifestyle? If you can settle for a comfortable and affordable lifestyle that allows you to spend less than you earn, commit to sticking with it long-term.
As a result, you can use income increases like raises and side hustle income, tax refunds, and bonuses to further yourself financially.
Some years ago, I met a man who told me how he was able to save $54,000 in three years from his pay increase. He made $120,00 a year before his new assignment. In the new job, he made $138,000. He saved the additional $18,00 a year by leaving his lifestyle the same.
The process is simple – keep living the way you've been living when extra money comes your way. After all, your lifestyle suited you just fine before the extra money. It will suit you just fine after as well.
So get excited about putting that extra money toward your debt, retirement accounts, emergency fund, etc.
7. Practice Creative Lifestyle Inflation
There is one thing about human nature, which I called the fight back. In your quest to stay focus on your financial goals, often time you deprived yourself of the good things of life. And when you felt you had reached your goal, the fightback begins. You unconsciously go back to all the things you’ve deprived yourself of and thereby setting your success on fire.
The best way to conquer this is to practice creative lifestyle inflation. With this method, you intentionally inflate your lifestyle for a short time. That might be going to an eatery and order costly food, or logging in an expensive hotel for a night. Just something that makes you happy.
Eating out should be a once in a while activity. The essence of this is to bring fun into your life and feel good following your financial plan. You should always set aside some amount of money for this purpose.
Inflating your lifestyle is okay every now and then as long as it’s cautiously premeditated. The problems come when it gets taken to the extreme. It can hold you back from attaining your real financial goals. If it’s your goal to be financially secure quickly and financially independent someday, it’s imperative to avoid lifestyle inflation at all costs.