Today’s post is from my staff writer Jordann. I’m still loving her posts and she writes every Friday for me. I’ll let her take it away now!
I’m in debt. I have student loans up to my eyeballs and a car loan. I hate my debt, and I’ve been working hard for the past twelve months to get rid of it.
I’ve cut my expenses, I’ve increased my income and I’ve poured every last dollar I have into debt. Now, a year into my little “become debt free” project, I’m starting to see some serious results. I’m projecting that I’ll have paid off over $16,000 in debt this year, and with a little luck I’ll get that much paid off again next year, bringing me slowly but steadily closer to my goal of debt freedom.
It’s been tough though. As much as I’m proud of myself for my accomplishments, and as driven as I am to get out of debt before anything else, I’m tempted. I’m tempted by lifestyle inflation.
With my increased income comes the increased temptation to improve my living situation. I’m tempted to start saving for a house payment, maybe buy a second car. Some bloggers will make lifestyle inflation sound like a quaint little story. They’ll paint it as having one too many coffees or taking an extra expensive vacation every year. They’ll make lifestyle inflation sound like an inconvenience that must be ignored, even though it’s something that might be nice to indulge in.
For me though, lifestyle inflation represents something a little bit more substantial than an overall increase in my spending. For me, lifestyle inflation is part of the act of becoming an adult. Right now, I live in a 400 sq. ft. one bedroom house, and drive one car between my fiance and I.
I’d really like to save for a downpayment on a house, or even upgrade to a larger apartment with a second bedroom and maybe even space for a kitchen table. I’d love to have a second car so my fiance and I don’t need to constantly coordinate our work schedule because we live in a rural area that has no public transportation. These things aren’t extra coffees or a shopping spree. These are real, genuine temptations that would make my life easier. These are things that to me represent adulthood.
As much as I’d like these things, I can’t have them. I want to get out of debt, badly, and I’m not willing to take on these extra expenses at the cost of an extra six months of debt repayment. That’s a slippery slope that I don’t even want to set foot on. I feel like if I did, before I know it, I’m a homeowner with an extra couple hundred thousand in debt and another 45% of my income tied up in minimum payments. It is, however, very, very tempting.
How I Avoid Lifestyle Inflation
Avoiding lifestyle inflation has been tough, but I think I’ve done a decent job at keeping my spending in check, even as my income has increased. Here’s how I’ve done it.
Visualize It – Instead of justifying these things by saying “It’s only a few hundred extra a month.” Instead I visualize the overall impact that few extra hundred a month will have on my goal to become debt free. A few hundred less a month towards debt repayment, for example, would push back my debt free date nine months.
Beyond that, with regard to savings, the results are even worse. $200 per month put into a retirement account starting at my age would easily yield over $300,000 by the time I retire. All in the name of a second car? I think I’ll deal with the inconvenience today.
Enjoy the Little Pleasures – Yes, I live in a small space to save money. That doesn’t mean that I need to live in a hole though. I spend money on making my small house more comfortable to live in.
That includes things like investing in paint, better bedding, and new furnishings. These small investments will make this place more bearable to live in, resulting in me staying here, and thus saving money, longer.
Remember The End Game – I spend a lot of time focusing on what I want. I want freedom. I want freedom from debt, and freedom to make decisions based on what I want, and not on what’s going to get the bills paid.
Being debt free, and eventually having substantial savings will afford me that freedom. In the mean time, buckling down and avoiding lifestyle inflation is a necessary means to that end.
How do you avoid lifestyle inflation?
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This is hard because when you make more, we naturally want to live a little nicer and have nicer things.
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It's definitely not easy to avoid lifestyle inflation, but I like your tip of "enjoy the little pleasures." We get DVDs from the library to save money instead of paying for them, and it's a low-cost source of entertainment. We plan on continuing to do this even as our income rises.
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I read your blog quite a bit but I don't always comment (I'm shy) but I have to say that I think you're amazing and incredibly inspiring. Paying off $16,000 in debt in a year is a major accomplishment and you should be so proud of yourself. I just wanted to let you know that 🙂
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Lifestyle inflation can be a killer to your savings. Almost everyone suffers from it whenever they come into a bit of money. I just try to keep my long term goals in mind and that normally helps keep my feet on the ground.
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We hit the big 3-0 recently, but still live just a couple steps above college students. Yes, there has been some lifestyle inflation since our super poor college days, but at an incredibly slow rate compared to most.
I think one of the big tactics that we use to avoid lifestyle inflation is remembering how much more complicated life gets when you have more stuff. To me, a bigger house = more cleaning that I would have to do. Another car = another thing that I'll get annoyed at for breaking.
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I'm right there with you PoP. We just hit 30 as well and live in a quaint starter house. A small house also means less expenses. The more bathrooms you have means there is more of a chance of having to pay a plumber.
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Good for you, I think you're focused enough on what you REALLY want to avoid it totally. I think hubby and I are on a good track for not overspend when I go back to work and have more money coming in again. We've got a good thing going on with our current budget so don't want to screw it up!
I just try my hardest to not increase my budget. I am sure there will be a point where I can afford it if I want to but if I avoid it I can retire earlier!
Good post. Like DC said, it's not easy to avoid…especially in our materialistic culture. How we avoided it was seeing what being debt free would mean. After several years of tasting what being in debt was, that was the biggest motivator for us.
Good job! I think you are doing awesome, Michelle. Just think….once you pay off all of your debt you will be FREE. Then you can choose so upgrade your situation somewhat…without taking your debt along for the ride.
Paying off $16K in one year is motivation to continue I would say. Sure at times it's tempting to give into spending money on big wants instead of paying off debt but I believe you'll be just fine. For me, I just wanted to be debt free way more than I wanted anything material and it kept me on the straight and narrow. During my debt payoff like you I always treated myself to small pleasures to reward my efforts. Good post!
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Lifestyle inflation is why I'm seeing my checking account twiddle into nothing. Ever since I got in a serious relationship where there are nights of drinking, going out to dinner, a dress or new outfit, I've been cringing every time my bills come in. I'm am currently not in debt but if I continue on my path I will be. I have a savings account cushion that I have not touched in years, I had to take out money from it to pay my taxes and it nearly killed me. I am setting up my budgets and recently had a discussion w/ my boyfriend that we have to be smarter in our social life choices. It sucks but I have to. To avoid lifestyle inflation, I've decided if I go to the mall I will only bring a set amount of cash with me that I know I can comfortably spend. No credit cards will see the inside of my purse. Once my cash is gone, it's gone. Also finding cheaper alternatives to that Frappacino & Lattee. I'm going to be using my library more instead of downloading that new book that I might hate to cut back. Little things do add up. Congrats on your $16,000 payoff! It's very motivating! =)
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Anyone who says they`ve never been tempted by lifestyle inflation is lying! Derek and I fight it every day. My biggest temptation is spending more on the kids. I sometimes feel guilty when other kids have something that my kids do not. Unfortunately there is no easy solution. I can only remind myself of the values I want my kids to have, and the childhood I want them to experience.
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Avoiding lifestyle inflation is hard.We have definitely "inflated" our lifestyle since grad school. We too lived in a 400 sq foot apt, and drove only one car. This year we upgraded to a 700 sq foot apt and bought my new to me car.
I am definitely trying to make sure to avoid too much of it, but sometimes we like to enjoy life. Putting savings away right away helps a bit.
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Isnt this the truth. Last march we were making half of what we are now and it seems as though we have the same amount of money as we did before…go figure..
Nice post. Personally sometimes I feel like I've gone too far in the other direction and save to a fault.
I'm 24, making decent money (55k / yr) and still live at home with my parent's rent free. I'd like to be able to buy a condo in the city without having a big mortgage so I've been saving towards that but I've recently been pondering renting a place -unfortunately a 1 bedroom apartment near where I work would go for 1400/mo minimum.
I suppose from a financial standpoint staying home longer would make sense but at the same time I want my independence…
I find remembering the end game the hardest. Sometimes when things are too far out it hard to take them as reality. I know for me that has been my struggle with fighting overspending.
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That is a big accomplishment paying off $16,000 in debt! Good for you 🙂
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I have to work very hard to avoid lifestyle inflation as well. I've worked so hard to become frugal that I don't want to give it all up just if I happen to get a raise. I just try to stay in the same mindset and understand that I always felt more fulfilled by being frugal than not. Basically, I just hold the exact same budget and move the extra money into debt payoff. When that's finished, I hope to move any extra money into savings and retirement.
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So true that it's about more than enjoying a latte. Lifestyle inflation is serious business. One of the things David and I considered before being hit with my health crisis was moving into a more expensive rental house. Ours has no heat, and it's in a less-than-desirable neighborhood (though I personally love the close proximity to my office). But the place we really loved was $200 more per month than what we pay now. Moving would have increased our rent by $1,400 over the course of the year. That's much more substantial than coffee!
What helps me is to remember my life in 2008 before I began paying off debt and compare it to my life now. Back then, I had a tanning bed package. I bought DVDs by the armload at least once a month. I went out to eat four times or more a week. (I would seriously go to a restaurant down the street for dinner by myself every night. No idea why!) I bought clothes and shoes like they were candy. And I think of how much has changed since then – no DVDs, no books (library, FTW!), only the clothes and shoes I need, no tanning, much less eating out – and how I don't feel deprived. I feel enriched for all the changes I made to get out of debt. And I know another year of living in this house without heat isn't going to break me. I know being able to pay cash for a vacation next year or buy a new laptop with cash when mine goes kaput is going to mean more to me than all the things that would make those expenses impossible. Not to mention, having savings just makes me feel less stressed, and that's worth the little sacrifices I'm making today. So, keep on keeping on Jordann! You'll look back on your 400sf home and your one car lifestyle and be grateful that you made these decisions to give future you better options.
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You are doing a very good job of things and are to be commended. I think the best way to not get trapped by an ever expanding lifestyle is to be aware of the full cost/implication of things. So many people think (literally) with the front part of their brain where rash decisions are made. I think you can live more peacefully and constructively if you wait for the front brain/impulse to wear off before you make decisions. Once the rational part of your brain kicks in and you can see beyond your wants to identify your needs…. then you're on the right track. Too many people see debt as a way to enable them. But the truth is it can be so disabling. You are wise to see it as a pitfall and not as a tool.
What I can tell you is that not being avaricious or wanting more than you can have does mean that things get easier as you get older. At 50, I can now say that if we did not save another penny for retirement, we could still exists above the poverty level in our senior years. Now we save so that we can live better than that. Compounding interest is one of the best things in life. Compounding debt is not.
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Shouldn’t you be running to work anyway? :p
I play “would you rather” with lifestyle inflation. Would you rather work for a year and buy a car or be financially independent a year earlier? I what keeps me motivated.
I hear ya, 100%. We've lived in 400 square feet in NYC and Boston. Time and again I've been tempted to throw in the towel savings-wise for a more comfortable lifestyle. But those moments are usually emotionally driven, and after a logical pep talk with myself (or the hubs), I get excited for saving again.
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At first I had no idea who was posting this…I thought wait Michelle lives in a house! I figured it out. Anyway, how do I avoid it? I just try not to do it. I slip up now and then, but I get back on track much more quickly than before. I don't know, just like Nike I guess..just do it! 🙂
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You are one smart cookie! I wish I had that much willpower when I was your age. I would be in a much different financial situation now.
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How do you avoid lifestyle inflation? Great question and a challenge to answer because it can creep in without us even realizing it.
In my opinion, you have to keep the focus on your own needs and your own situation. Don't compare yourself to others. I know when I start looking around to see what new car, or new house, or new clothes, or new gadgets other people are buying, I feel deprived…like I'm missing out. I then spend money unwisely and regret it.
we avoid lifestyle inflation by the fact that I`m a student. BF is working fulltime and earning good money, but since I cant afford much, I influence him to not use that much money. and since we live together his financial choices has to follow mine, since I could never afford living like he is able to, be he can live like I do:)
We don't indulge in anything that we simply fancy. Like, it would be nice to refurnish the second bedroom, buy a new LED tv, or get a new dining set. We can still do with the old bed, it isn't like somebody is using it (lol), and for the new tv, whew, it will cost 2 months of food budget! I mean, this can go to savings instead if we just cut our desire or simple want. If needed, we go buy it. That's the simple rule.
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