7 Ways You Can Avoid Lifestyle Inflation
You probably remember landing your first “real” job after college and cashing that first big paycheck. You most likely felt like a high roller and treated yourself accordingly. As you have advanced through jobs and pay grades over the years, have you noticed that your lifestyle has become more and more costly? This is what is known as lifestyle inflation—the more you earn, the more you burn.
As you improve your earning potential and land better-paying jobs, it can be all too easy to increase your spending as well. In fact, trends show that the majority of people automatically spend more money when they begin making more. This can lead to poor financial decisions and impedes your wealth-building potential, so here are some basic tips for avoiding the lifestyle inflation game.
Stop keeping up. “Keeping up with the Joneses” is the nemesis of financial security. Just because you’ve started a new job with a big-wig company doesn’t mean that you need to start driving a BMW like all of your new coworkers; your perfectly running Honda Accord is still suitable. In fact, chances are, the Joneses themselves look a lot wealthier than they really are and may even be paying off incredible amounts of debt. You don’t want to mimic that, so stop fixating on what others have.
Save additional money. Every time you receive a raise, you should bump up your savings. Bonuses and tax returns shouldn’t be looked at as opportunities to spend, but rather opportunities to save. That $1,000 holiday bonus you received in your 20s can grow exponentially in a retirement account and will be worth much more when you’re in your 60s, whereas those five pairs of Air Jordans you wasted that cash on probably won’t even be in your shoe collection within the next decade.
Always be re-budgeting. Each time you come into more money you should be taking a new, fresh look at your budget. If you’ve received a considerable raise, your budget should reflect this. Your saving and giving funds should go up, and it’s even okay if your spending goes up a little bit too, within reason. If you fail to first re-budget, your spending could get out of control and you’ll eventually have to painfully harness it back in.
Prioritize savings. Savings should always come first—both in lean times and in times of plenty. Whether you save in an IRA, 401k, or any other type of savings account, this is the first aspect of your budget that you should look at every time your earnings increase.
Pay down debt. When your salary increases, you should not only focus on saving more, but paying down any debt you have incurred. Getting rid of debt is crucial for preparing for the future. This way, in case meager financial times are ahead, you won’t have creditors knocking on your door.
Stick with what you enjoy. Just because you can afford to do more expensive things or buy pricier items doesn’t mean that you should. Embrace the affordable things that you love in life, like nature walks and trips to the park. Vacations don’t have to eat up all of your savings accounts and the department store jeans that you’ve loved for years don’t need to be replaced by designer ones just because you can afford it.
Have fun. Many bonuses and raises come at the expense of some very hard work on your part. Extra hours, business trips, and burning the candle at both ends can leave you feeling exhausted and drained. When the bonus comes in, take some time to do something you love with it, whether it’s buying that item you’ve always wanted, finally going on that dream trip, or just taking some much-earned time off. Sometimes it’s okay to conservatively enjoy the fruits of your labors.
If you’re currently enjoying times of plenty, congratulations on your hard work and diligence it took getting there. If having nice things still seems like a far-off pipe dream, keep working toward it. Someday you might just find yourself searching for this article, trying to not overspend that impressive new salary.