Lifestyle inflation can be a savings killer. And for us it has been. Long ago were the days when we lived in a SUPER cheap rental house ($350 a month from the BFs relative), driving junker cars, no flat screens, no unused rooms in the house and so and so on.
We also never took vacations, ate cheaply (hey we were poor kids out of high school!) and were frugal as we thought we could be.
We still spent a lot of money (we were not financial savvy at all) but our expenses were still very low. Probably below $1,000 a month for everything.
So it would seem logical to us that our spending would go up as our incomes went up. Our expenses are now up around $2,500 a month (see my last budget update here), it would be higher, but we used cash for a lot of things. We bought a brand new car, a used Jeep, another junky car, and a classic truck (that's worth around $20K). This is all spending from the past couple of years that we didn't have at first. Still though, that's a big leap from our budget 5 years ago.
However, I can honestly say that I wouldn't want to live like we did before. It worked for us then, but most likely not now. But I am happy with my life right now, so no creeping here please.
I typed in “Lifestyle Inflation” into Google to see what would pop up and how other people dealt with the possibility. The first thing that popped up was PDITF's post about how it almost crept up on him, but instead he funneled that extra money to retirement. By sending an extra $75 each paycheck to retirement, in 40 years that would total around $765K after an 8% estimated rate. That's a lot of money, especially for something that you won't even miss every week!
My plan for the near future is to funnel any salary increases I get towards debt. So if my salary goes up 4%, then I would like to increase my debt payments by that exact same amount (plus more) every month. Then eventually I would apply this towards savings as well.
This is something that I definitely need to keep in mind, especially since I'm getting 3 raises this year. I'm getting the standard yearly raise, a raise for attaining my MBA, and another raise for me getting my financial certification. So there's a HUGE possibility for lifestyle inflation to creep up on us.
Of course once I make more money, I will most likely start spending a little more. I hate to say it especially since I call myself a personal finance blogger, but spending money on the things that I love such as nice clothes, good vacations and experiences make me happy. I don't want to go crazy and buy an M5 or an 18 bedroom house though (not like I'd have that much money anyways though!).
I am pretty happy with my life, so I don't really expect monetary things to get in the way of me saving in the future. Or at least I say that now…
We don't want lifestyle inflation to keep creeping on us. We need to save more and I would like our savings to go significantly larger than the proportion it is to our incomes right now.
You don't want your lifestyle to exceed your salary, and that is possible with lifestyle inflation.
- You should still be trying to cut expenses if your salary goes up (no need to be wasting money)
- Keep enjoying the things that you love
- Watch your spending!
- Think about where you want to be in 5 years, and don't let unnecessary spending get in the way.