Lifestyle Inflation – But I’m Not Upset

Miami Lambo

Nope, this is not our new car… Photo Credit

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:

  1. You don’t have enough money to last you until next week.
  2. You have a lot of credit card debt.
  3. You have a lot of debt at a very high interest rate.
  4. 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?

 

Comments

  1. myfijourney says

    I had a big burst of lifestyle inflation when I went from being a grad student to being a postdoc. I think it was warranted, and certainly made me a lot happier. I haven't really inflated my lifestyle at all after moving from a postdoc to a real job. I would like to buy some new electronics and spend money on international travel. But I'm cheap, so I'll probably wind up putting those off for some time.
    My recent post Microsoft (MSFT) Dividend Stock Analysis

  2. Lexie says

    I do not cave into lifestyle inflation. I drive a 11 year old car with zero problems and do not crave new cars the same way many do that must feel they have to maintain a lifestyle or impress the neighbors. . I think its a case of the economy is not rebounding, and the ocuntry is in worse shape then ever since the election Soon when Nobama care hits it will force many into severe debt . .Many are falling into a terrible finaincial trap of spending more. Its a smart time to continue to be prudent, careful, not move into new houses and watch every dollar. I recently decreased my monthly expenses by over 1500! Yet I am not buying cars, or shopping for anything. I am being smart and careful. When you are alone in life and do not depend on a man or family, but stand on your own you have to be really smart about money and watch the bigger picture. Its a matter of being content in life with what you have not not falling into the spending trap

    • MakingSenseofCents says

      We aren't trying to impress our neighbors at all, we're actually afraid of what people will say and have thought of ways to NOT tell people, because we know that some people will think that we are just showing off.

      I agree, people definitely need to be smart with their money! We are still saving over half of our income (even with the new car).

  3. Holly@ClubThrifty says

    I think that some lifestyle inflation is okay. I am getting older (33) and there are things I'm willing to pay for now. Greg has a Prius, for instance. We have a nicer house than we have to. Etc. But it's all planned out and thoughtfully decided on and I think that's the difference between regular lifestyle inflation.

    Congrats on your new car and I hope that you love it!

  4. @MoneyMasterMom says

    Hey Mrs PoP, we decided it was time to upgrade from the old college dishes and bought a set for $1/piece. I know we're crazy spend thrifts! Although in college sometimes I ate off paper from my printer when I didn't feel like doing dishes. I've lifestyle inflated since school but not to much since our salaries have increased :)
    My recent post Why I Said No

  5. Emily @ evolvingPF says

    I have a different definition of lifestyle inflation – it's when you increase your lifestyle unconsciously with no regard to your values. What you guys are doing probably isn't inflation if you really considered the purchase carefully before you made it. Taking deliberate steps to improve your lifestyle isn't inflation, it's just increases. That's how we plan to do things when we have non-student salaries.

  6. Jordann says

    I definitely feel the tug of lifestyle inflation. Right now the big thing is I would like to find a more spacious place to rent. Our 400 sq. ft. house is extremely small. I'd like to have a second bedroom that I could make into an office/guest room/place to keep a treadmill. Not till I'm debt free though!

    • MakingSenseofCents says

      I know exactly how you feel! Our old rental house was fine then, but now that we have more space, I don't think I could go back. However, we have also added another dog to the mix and have 2 dogs now, so it would be hard to go back to 400 square feet.

  7. K.K. @ Living Debt Free Rocks! says

    Carefully planned spending that is easily supported by one’s income is what I do and that’s what you’re doing Michelle. I find it bothersome when some individuals comment negatively on this approach. You are already doing the necessary (saving/investing/paying down debt/evaluation of expenses) so enjoy your new car and everything else you plan for!
    K.K. @ Living Debt Free Rocks! recently posted..Hey Murphy: Get Your Ass Outta Here!My Profile

  8. DC@Young Adult Money says

    I think your "inflation" is justified. Honestly, if our income increased by a large percentage, I would definitely consider upgrading some things in our house, getting new cars, and generally rewarding oursevles. Also, having someone help clean a house can be huge, especially if you have a hectic schedule. It's an easy task to outsource.

    Once my wife is done with grad school I expect our income to increase significantly. Also, through improving my skills and moving up at work as well as pursuing some side income (and growing that side income) I fully expect to succumb to lifestyle inflation in one way or another. I know I would be looking to buy a new car instead of seeing how far past 200k mine can go ;)

  9. Christine says

    I think for most people lifestyle inflation is normal with an increase in income. You see very few people making tons of money who are still living in a tiny studio apartment and wearing the same clothes they were 20 years ago. I don't think there's anything wrong with either scenario. It's all personal preference. Though I do think only spending money to keep up with the Jonses' is kind of dumb.
    My recent post February Goal Review

  10. LivingDFRocks! says

    Argh I had written a response via my smartphone and poof it dissapeared. In short, from my vantage point, you're doing everything necessary (saving, investing, paying off debt, evaluating your expenses) so I really hope you enjoy the new car and anything else you plan to purchase because I think you have a solid grasp of your finances!
    My recent post Hey Murphy: Get Your Ass Outta Here!

  11. Jose says

    I think you can also call it lifestyle "creep", I borrow that term from Project Management where project "creep" will have a an ever expanding list of things that get lumped into the project. With Lifestyle creep, youkeep adding to your standard of living a new car here, a new tv there etc. I've been there and done it!
    My recent post When Death Do You Part – Is Your Family Prepared?

  12. Lance at Money Life and More says

    Enjoy your new car… I almost spilled what it was but noticed you didn’t mention the car you are buying.

    We are.getting a new bigger house which is likely considered lifestyle inflation. It was in our plans for the future though and is still extremely affordable so we don’t mind. It isn’t even 2,000 sq.ft so it isn’t excessive and will allow us to live there for many many years to come unlike our current townhouse which we knew when we bought it.
    Lance at Money Life and More recently posted..Debt Pay Off Update – March 2013My Profile

  13. FrugalRules says

    I think it is just fine to a certain extent. Life is meant to be lived after all and as long as you're doing it within reason then I think it's perfectly fine. We have seen a bit of it ourselves as business has grown for us and it is fine. When you work hard and watch your expenses in other areas then spending money on something you enjoy is just fine in my opinion.
    My recent post Is it Time to Get Out of the Stock Market?

  14. @girlmeetsdebt says

    Congrats on the new car! It's so obvious that you work so hard at your blogging and online stuff and I can only imagine how hard you must work at your job too! Enjoy the happiness that money can bring ;)

  15. Johnny Moneyseed says

    If you look at people who are actually "wealthy" a lot of times they don't live a lavish lifestyle, and that's what keeps them rich. The best example of that is Warren Buffett. He's one of the richest people on the planet, yet he doesn't have a mansion or anything super Fancy.

    How do families that make less than $250k a year justify any extra expenses? My family can live off of $50k a year EASILY. Once our mortgage is gone, that number will drop to $30k a year. And we have a great, fulfilling life.
    My recent post Setting up a passive income stream

  16. Budget and the Beach says

    OK I might be the only person to say this here, but I did think yes it's a bit crazy to buy a new car, only because I think new cars aren't great purchases to make because they lose their value so quickly. But I have no right to judge, and to tell you how to live your life, and subscribe to the idea that if you can't say anything nice, then don't say anything at all. The truth is when I was your age I would have bought the new car (probably even if I wasn't making what you're making (and wasn't). But here is what I've learned in my advanced age (lol), stuff you buy doesn't make you happy at all. You guys are killing it financially (you make in one week what I often make in a month-and that's just your SIDE income). For me buying experiences while keeping life on the simple side as far as "stuff" makes me feel a lot happier these days. I get so much crap about my boxy old TV, which I bought used for $100 at least 12 years ago. I COULD buy a new one, but mine works, so why bother. I think it's just something you want to keep in the back of your mind…WHY are you buying these things? Food for thought, that's all. :)
    My recent post So you want to save money?

    • MakingSenseofCents says

      You are fine, I want all opinions. Yes, we did buy a new car, but W works at the car dealership that we are getting it from, so we got a good deal on it. With us though, we do enjoy having nice cars. It's not just the look of it that makes us happy, it's the way they drive and the fun that we can have with it also (such as with bringing it to a racetrack).

      And we are definitely still spending money on experiences also. I still need the courage but I plan on going skydiving sometime within the next couple of months :)

  17. MakintheBacon$ says

    The bf and I live in a detached home on a corner lot in a more established neighbourhood in what many people consider to be a “wealthy city” in our area. I guess that would be our lifestyle inflation? However, my bf and I are still quite frugal. We too have mismatched dishes and not a lot of stuff, cause I hate the idea of too much stuff. While my salary increased somewhat over the past couple of years, I have no desire to upgrade things unless it’ll add more value to the home.
    MakintheBacon$ recently posted..A Closer Look at Office RomancesMy Profile

  18. christie says

    This has got to be one of the hardest parts of money management. It is so hard to see yourself realistically. I think this is why a budget with percentages is so helpfull. You save 10%. When your income goes up then your savings will go up. If you have covered the basics, then you can decide… lets spend 10% on a vacation. Again, that number will rise and fall if your income changes.

  19. shopping2saving says

    When I started working I definitely had lifestyle inflation since I had no debt, and it was my first time seeing that much money. It took a few months to realize that I can't keep spending like I don't have a budget, which is when I started my blog! I'm not sure if I will ever get the opportunity to experience lifestyle inflation again since I will probably be paying off law school debt for many years to come. I've seen my bf's attitude about life change with his 50% salary increase, but he now just puts more towards his loans. It's actually not the same =(
    My recent post Would You Teach Your Kids To Fight Back?

  20. Nick @ AYoungPro.com says

    I think some level of lifestyle inflation is normal and expected when your situation changes. I just graduated and got a job making 2.5x what I was making before. We are building a new home. This is lifestyle inflation at its finest, but the key is we aren't going overboard on the home. We could have spent a lot more than we did on our new home. I think as long as you keep your lifestyle inflation in check and make conservative decisions you will be ok.
    My recent post The Best Courses to Take in College

  21. mycanuckbuck says

    We just bought a new (used) car, but managed to refrain from busting our budget. But – we could live with our old car still..so not sure if that's lifestyle inflation or not. :)
    My recent post We bought a new (used) car!

  22. @SavvyFinLatina says

    What car did you buy?

    We have increased our lifestyle considerably since last year when we were still students. I think our expenses have doubled. But there are a lot of factors including insurance payments, nicer apartment, less fast food, etc.

    Despite this I think we have hit our sweet goal for expenses. My plan is to keep our monthly expenses to around $3,000. I still think this is high, but I am working on lowering it.

    While I'm glad you bought a new car! Wooottt :p I am not a person who generally enjoys new cars. My new to me car is so awesome, but it's 6 years old. My husband wants an Audi, but let's be honest no way we are getting an Audi unless I'm making 250K a year.
    Everybody chooses to spend their money differently. Just keep saving :)
    My recent post Last Check for The Mitsubishi Car loan

    • MakingSenseofCents says

      We bought a Camaro 2SS. So it is expensive but super nice!

      Our expenses have increased by a lot also, but I think that's only normal once you're out of school and start making more money.

  23. @TheHeavyPurse says

    I have no problems with lifestyle inflation as long as all other obligations are being met (including savings!) and you have no debt or it's being aggressively paid off. I was taught that money should bring joy into our lives and others if we used on what truly matter to us and was within our means. My father taught me what we did with our money was often more important than the amount of money we had. Congratulations on being in a place where you've grown your income and can add in a few extras back into you life – like decorating your home! :)
    My recent post A New Day in Financial Literacy

  24. HappyFund says

    I've been off of a budget for over a year, and there's probably some inflation in there somewhere. I ward the lifestyle inflation dogs off with the practice of conscious spending. I don't view lifestyle inflation as ever being good. For me, it ranges from ok to horribly catastrophic. The thought process for lifestyle inflation usually goes like this: "I'm making X times more than before and still saving Y amount, so…I think I can afford to get this just this one time. I deserve it for all my hard work." For some people, that becomes a slippery slope.
    My recent post Fighting Multiple Sclerosis One Bike Ride at a Time

  25. Cece says

    I think the key is living below your means. If you make more money but still live below your means AND increase savings accordingly I don't see anything wrong with improving your standard of living. Like everything MODERATION!! I personally don't care if I ever buy a brand new car but if it's important to you then you should if it fits the budget. My husband bought a new car last year and incidentally it helped us a lot on tax returns this year!!
    My recent post Long Short Weekend

  26. 1stmillionhardest says

    As long as your income growth outpaces your rate of "lifestyle inflation" its not a problem at all. I don't think anyone should be ashamed of buying a big house or new car if they do so within their means. We all work hard for our money and its important to enjoy it…as long as we do so responsibly.
    My recent post What To Do With A Pay Raise

  27. The Norwegian Girl says

    I`m not caving into any lifestyle inflation because I can`t afford it! but BF is seriously looking into buying a new car, now that he`s got a good job and decent pay. But it`s not the smartest thing to do right now, especially since we live in a big city with good public transportation, and well, cars are rediculously expensive in Norway! So I`m trying to be understanding, but also honest about how I feel about it.
    My recent post I Battle Fibromyalgia, What`s Your Superpower?

  28. dealfinderdiana says

    I fall victom to this. All. The. Time! I just got a slight raise last month, I am going to try to open an ING account and have that extra money funneled right into a savings account. If I never see the money, maybe I will forget its there.

  29. Michelle says

    Lifestyle inflation is part of the reason my money is funny! But, you are working hard and bringing in a serious amount of additional income. You also got a discount on the vehicle. I want a Maserati, if I have a ton of money one day you might see me driving it!

  30. Mr. Bonner says

    I don't think there's any way to truly avoid lifestyle inflation. One way or another it's going to creep into some part of your life as you get older and become accustomed to life's little conveniences. I never thought I'd buy a new car, but when we had our second boy last year I sold my Tacoma on Craigslist (holy cow, little did I know the secondary market for Tacoma's is nuts!) for a solid price and we bought a new base model Sonata through Costco.
    My recent post Update within your neighborhood

  31. kimateyesonthedollar says

    I don't really have anything that hasn't been said, but I was just a bit older than you when I started my lifestyle inflation cycle. Now that I'm past it, I can look back and say what I did and didn't need, but it was what it was at the time. I think you're smart enough to not get to far gone and into debt. Congrats on all you've achieved.
    My recent post Should You Transfer Debt to a Low Interest Credit Card?

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