As I said yesterday in my post No New House For Now and $2,323 in Extra Income, we bought a new car. Surprisingly, no one yelled at me.
Whenever we make a financial decision, I'm not going to lie, I tend to think about how readers will perceive the decision and whether I will get yelled at. That's not always bad though, because it just makes me triple think everything and make sure I'm happy with whatever decision that I do make!
Lifestyle inflation definitely seems to be a hot topic lately. The economy (for some areas) is rebounding, incomes are increasing and everyone seems to have a degree in something. Back in November, I made a post about how I have many budget busters for the near future. Jordann made a post back in December about how she is avoiding lifestyle inflation. Lifestyle inflation can be good or bad, realistic or extremely ridiculous, etc. It all depends on where the value lies and can be all relative.
Also, a couple of months ago, Holly over at Club Thrifty made a post about lifestyle inflation, and succumbing to it. She talked about whether she should pay someone to shovel their snow filled driveway, or if she should just do it herself. And they were also considering hiring someone to clean their house (I'm not sure where they went with that decision though).
Our income has increased by a crazy percentage over last year's (and all the years before that), and the time that we spend on our income endeavors has also increased by a crazy amount. Yes, I am no longer in graduate school (graduated last summer, WOOHOO!) but I have switched that time I spent on school work for my extra income jobs now. So instead of going to my night classes right after work, I am now going home to spend countless hours on my laptop working on my side hustles.
So, what is lifestyle inflation?
Lifestyle inflation is when you take extra money that you make (such as from a salary raise), and instead of saving it, you justify a new way to spend that money. You are now making an extra $100 per month? Well then you are most likely succumbing to lifestyle inflation if you buy a car that costs $100 more every month (such as instead of buying a car for $20K, but then get a raise and decide to get a car for $30K). You are essentially spending that extra money that you are making, and won't ever feel caught up.
This is why people who make $1,000,000 per year sometimes say they have no money (come on people, you guys have TONS of money!) and say that there are still things that they would spend their raises on. It's a constant rat race.
Now, I don't think lifestyle inflation is always good. In most cases, it is probably bad. Of course this is all relative, and most people would probably tell us that we're being stupid. Anyways, lifestyle inflation might be bad for you if:
- You don't have enough money to last you until next week.
- You have a lot of credit card debt.
- You have a lot of debt at a very high interest rate.
- You are only spending money to Keep up with the Joneses.
At what point do you justify extra costs?
We have had an increase in income. But that is most likely just normal because we are 23 and 24, so we have gained better jobs and no longer hold the same jobs that we started in high school (I quit the job I started in high school 3 years ago to work at the place where I work now, and W quit his job that he started in high school just last summer). So some of this lifestyle inflation is just normal. I would think that it would only be normal to not want to live as though we are still on a broke college budget.
We used to live in a tiny 400 (I think it was 400? There was literally no bedroom in this house) square foot house back when we were only 18 (we lived there for one year), so I would like to think that is something that we were allowed to have a little lifestyle inflation with.
Making sure that we can actually afford something is always important, and we always want to make sure that we see value in it. Yes, not all of you will see value in getting a new car, but we do. We can afford it and we would still be saving a decent amount of our after-tax monthly income.
We always make sure that we put our debt payments (my student loans are almost gone though, woohoo!) and retirement first. While yes, W would rather buy things instead of save, I do force us to save. I make sure that we are always living on one income and never buy anything too extravagant where we would have a problem paying for it if something were to happen (job loss, sudden high expenses such as for medical reasons or home repairs, and so on).
Make sure that you can afford what you are buying also. Buying nice things but forgoing important things such as insurance is not wise.
And, at what point is your time worth more than your money? Lifestyle inflation also plays into buying things to make things easier also. Would you rather spend time with your children, family or friends instead of doing something that you don't want to do (whether it be cleaning, shoveling snow, doing yard work, etc.)? What is $20, $30, $100 worth to you? Is it always lifestyle inflation if you find value in what you're spending your money on?
Below are some lifestyle inflation examples that we have fallen into:
New Car – As I said earlier in this post and also yesterday, we bought a new car. It hasn't been delivered yet, but it is a for sure thing. And yes, it is brand new.
New House – We were looking for a new house, but decided recently that we are in no rush. It doesn't have anything to do with money, it's just that we still like where we live and don't mind staying longer. However, if our income wouldn't have increased by so much in the last couple of years, I'm not sure if we would have thought about a new house at all. Our plan was to always stay in our house for only around 5-7 years, so it's not as though we are being too crazy since we have lived here for nearly 4.
Hiring someone to help clean – We've been wanting to hire someone to help us around the house. Yes, we do make time to clean, but maybe a once a month total overhaul would be nice. We definitely see value in this. We both work a lot, and instead of using our one day that we have off together, we would rather relax than clean the house.
We have thought about asking my sister to do this and then taking a dollar amount off her rent, but lets be honest, she sucks at cleaning. Sorry Lexy! I don't think she said yes to our cleaning proposal anyway…
Are you caving into lifestyle inflation, or is it just normal?
What major purchases have you made or are you planning to make?