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Why Lifestyle Inflation Can Keep You Poor – And How You Can Resist It

It’s easy to find yourself thinking, “I’ll be so much happier when I get a raise.” Then, you get a raise and feel like your financial situation has drastically changed. You can afford to save a little more per month or maybe even make that much-sought-after upgrade to your home.

But after a few months, you get used to the new salary, and the cycle begins again of waiting for that next pay increase to feel like you have enough money to live comfortably.

Many of us get the same feeling when we buy a house. What was once a gleaming home that filled you with pride is now a constant reminder of everything you want to fix.

poor from lifestyle inflation

It’s easy to find yourself thinking, “I’ll be so much happier when I get a raise.” Then, you get a raise and feel like your financial situation has drastically changed. You can afford to save a little more per month or maybe even make that much-sought-after upgrade to your home.

But after a few months, you get used to the new salary, and the cycle begins again of waiting for that next pay increase to feel like you have enough money to live comfortably.

Many of us get the same feeling when we buy a house. What was once a gleaming home that filled you with pride is now a constant reminder of everything you want to fix.

This concept of lifestyle inflation, wanting more and upgrading with every pay increase, can cause a spiral of financial “buy-ins” that would be difficult to reverse. While it’s normal to want to upgrade your lifestyle when you can afford to, you have to be careful. Not only can lifestyle inflation keep you from realizing your real financial priorities, but it can also get you stuck in a situation where you can’t afford your lifestyle if you took a pay cut or got laid off.

It’s possible to reward yourself for accomplishments in your career and financial life, while also making sure you’re not putting your future self and even family at risk.

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Why You Should Prevent Lifestyle Inflation

It’s plain and simple: lifestyle inflation puts more pressure on you to continue earning more and more money.

For example, if you buy a $500,000 house and lose your job a few months later, suddenly you’re scrambling to pay your mortgage, so your house doesn’t become foreclosed. If you buy a less expensive house, you’ll have more breathing room in your budget – and more peace of mind.

“When you make a $100,000 a year but live like you make $80,000, you’re still living a nice life and have a cushion for the setbacks. That makes life much happier,” said MBA and wealth coach Rocky Lalvani of Richer Soul.

The more you spend, the harder it can be to switch careers or take a job that doesn’t pay as well. You might have to decline a job offer you’re really interested because it won’t support your current lifestyle.

When you live more frugally than you need to, you can remain open to and flexible to take most opportunities that come your way.

Also, when you live on less in a marriage or partnership, the more one person can take risks with their job, like taking extended parental leave or going to grad school for a year.

How to Prevent Lifestyle Inflation

Make Saving Your Priority

I know this is obvious, but the more of a nest egg you have, the more comfortable you’ll feel with your financial situation, which is why saving should be a priority. Instead of paying everyone else first when you get the pay raise (like a car dealership or maybe booking a fancier hotel for your vacation), pay yourself first by increasing your retirement contribution by saving 1% more of your paycheck.

Additionally, the more money you earn, the more you should set aside for your emergency fund. An emergency fund keeps you from going into debt if disaster strikes. Try to save between three months to one year’s worth of expenses.

Keep Your Top Expenses Low

For most people, their biggest line items are housing and transportation. In fact, a third of Americans are spending 30% or more of their household income on a mortgage, which is why housing and transportation categories can make up almost 50% of their total budget. The less you spend on a house or a car, the more you’ll have for other categories.

Plus, a mortgage or car payment isn’t something you can change quickly if you lose your job or need to cut back for a few months.

If you already have a large mortgage or car note, consider this to adjust your current situation:

  1. Reduce dining out by one night per week
  2. See if you can swap out your current luxury vehicle for something just as safe, but with fewer bells and whistles
  3. Minimize any house renovations to only ones that will increase the value of the home without investing a significant amount into the project
  4. Focus your attention on increasing your emergency fund with your next pay increase to provide yourself and your family with a little more breathing room.

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Stop Comparing Yourself to What the Jones’ Are Doing

“Comparison is the thief of joy.”

We’re all guilty of comparing our lives to the ones our friends or neighbors are living. What these fleeting comparisons fail to provide us with, though, is the full picture.

Instead of wishing for the same vacation, television, or bathroom renovation, consider how much those things would set you and your family back financially. There’s no way to know — unless, of course, your friends or neighbors tell you — how much they spent on recent material purchases and how much they may be in debt from an accumulation of splurges.

None of the above is worth putting your family in debt to keep up with what everyone else has. And who knows, maybe your friends and neighbors are envious of how financially free your family appears to me.

Remember Your Dreams

Do you want to open a brewery? Invest in rental properties? Retire at 50? Be able to send your kids to study abroad for six months?

Write down that list of dreams and funnel your increased salary toward reaching those goals. Consider having a visual reminder by putting the list on your refrigerator if you need that daily reminder. Look at it before you think about a car upgrade or even before you head out shopping.

How to Enjoy Life Without Lifestyle Inflation

Avoiding an inflated lifestyle doesn’t mean avoiding a fulfilling and comfortable life. Research says the best way to enjoy your newfound success is to spend money on experiences instead of more stuff.

Instead of buying designer clothes or upgrading your iPhone, spend money on vacations, hobbies and time with your loved ones. If you love photography, use your money to buy a new camera or take a portraiture class. Is everyone having a hard time buying holiday gifts? Decide to all go in and have a family vacation instead.

Another way to capitalize on a recent raise or promotion is to buy time. Outsourcing your chores like laundry, cleaning and cooking can allow more time for relaxing and enjoying your day-to-day life.

For many, the danger of lifestyle inflation lies in the inflation of expectations. In other words, you only feel like you “need” that expensive pair of shoes when you’ve conditioned yourself to think of that as normal for your financial situation. If you avoid the temptation of an overly extravagant lifestyle, you’ll have a much easier time living within your means.

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Zina Kumok is a freelance writer specializing in personal finance. A trained journalist, she’s covered everything from murder trials to the Final Four. She also writes a blog about paying off her student loans in three years at Debt Free After Three.

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About Zina Kumok

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

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