What is lifestyle inflation and why you should avoid it?

It’s just recently that I learned about the term “lifestyle inflation” and immediately, I just had to make a post about it.

You see, I’m no expert, and I’m really upfront about that in this blog. But what I do have is the passion to share to all of you guys what I know. And I know what lifestyle inflation is because I’ve experienced it beforehand. I hope that through my experience, and through what I’ve learned from my mentors, I can prevent you from doing the same mistakes that I did.

What is lifestyle inflation?

Let’s start with the definition.

Lifestyle inflation is actually just a term to describe the phenomenon when you increase your spending when your income goes up.

Yes, it’s just a fancy term, which I think just became a thing when it has become a common occurrence enough to deserve its own name.

You’ll be surprised of how common this is. Remember from your own experience, have you realized that even when your income goes up each year, your savings doesn’t seem to grow in proportion? You’re earning more but for some reason, your expenses also increased. And this is not only because the prices of goods and services inflated, but mostly because your lifestyle dramatically increased as well.

Let me give you an example from my own experience

I was once a technician that earns slightly above minimum wage during my first job. I had this salary for almost a year and was very happy with it. I was saving a part of that income in the bank, I was able to start supporting some of the bills of the family, and I can even buy my family occasional gifts. It was a wonderful feeling to earn money.

I earned more after transferring to a different job in a different company. It was just amazing to be earning more money and seeing more numbers in my bank account. Immediately, I came to realize that I can now afford going to fancier restaurants. I can now shoulder bigger bills for the family. I can now splurge whenever I want and still live the same life I’ve lived before.

But my biggest mistakes were probably the wrong investments I delved into. Because of my desire to earn more money, I just jumped to every opportunity I can find – even the shady ones. Well, doesn’t matter, I had more income. Bad news is that my savings were still not growing.

I guess it wasn’t until I got introduced to proper money management and investing that I began to increase my savings and investments, and grow my net worth in the process as well.

I want you to grow your finances too, so let’s look at the obvious things you should avoid

When people talk about lifestyle inflation, they mostly think of big purchases that make people go deep in debt.

One example of this is buying a house.

Most of the time, newlyweds fall into this trap of buying a house, since their combined income can pay for the house anyway. They go into mortgage debt to pay for that house during their better years. Pretty soon, they’ll have kids, and will have to spend money taking care of them as well. Their kids will grow up and they’ll decide to buy a bigger house to accommodate the bigger family. The parents probably have better incomes by this time, but the mortgage they’re paying for will increase as well.

Another example is buying a car.

My cousin’s son landed a job that is paying a very lucrative salary. He commutes against Metro Manila traffic to and from work every day. He decided recently that he needed a car. This is not to solve his problem with Manila traffic, but just because he can now afford to pay for it monthly.

His lifestyle changed to match his high income. But I’m pretty sure he’ll soon realize that his expenses will shoot up because of the additional upkeep of owning a car.

A house, a car, or whatever it is, if it’s not earning you money, then it is definitely a liability. You can probably cite a lot more examples like these. Bottom line is that big purchases can cause big inflations on your lifestyle as well.

But the things you should really look out for are the small contributors to your additional expenses

Big purchases are scary and all, but believe me when I say that the scarier contributors of lifestyle inflation are your small, everyday purchases.

Think about it. You think you may be the most frugal person in the entire world, but even though your income grows every year, you still find yourself discontent on how much you’re saving regularly. You don’t buy big, heavy purchases that can put you into debt. Just for some reason, you’re spending more but don’t know where.

Friend, welcome to these small increases in your lifestyle.

Sometimes, these small expenditures are unnoticeable when you’re just normally living your life day to day.

For example, a promotion gave you a big boost in salary, but with that, you get to hang out with people with the same average salary level as you are. You eat out more during lunch and occasionally buy coffee from Starbucks. No matter, you think, because now, you can easily afford to do so.

Because of your new job, you now work longer hours. You still want to spend time with your family, so instead of cooking for your family, you can just order fast food or go to the nearest restaurant for dinner. It doesn’t need to be a fancy restaurant, so you think it won’t matter much.

I guess you can see now where I’m heading with this.

Small, frequent expenses are the ones you track the least

Friend, this is lifestyle inflation at its purest form.

It’s not necessarily the big purchases that will have a huge impact to your cash flow. These purchases are mostly monitored and expected anyway. You can adjust your lifestyle for them. May times, it’s all okay.

But the small, frequent expenses – these can be tricky to look out for.

Be mindful of where you spend your money.

Keep your life simple and happy.

Here’s to your success!

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