What if I told you that you’ve been sabotaging your finances for years, and you didn’t even know it? Not by making big purchases, going into debt, or even overusing your credit cards. No, the giant financial killers are far more sneaky and subtle. A few dollars here, then a few dollars there. A minor upgrade to your cable bill or a slight change in what you eat.
All these minor changes can add up, and before you know it, you’ve fallen victim to…lifestyle inflation or otherwise known as lifestyle creep.
What Is Lifestyle Inflation?
So what exactly is lifestyle inflation? When you start out in the world, you typically aren’t making much money. You buy cheaper food, cheaper clothes, basically have the standard version of most items. Slowly but surely, your income increases, and without even realizing it, we upgrade our lifestyle. They aren’t significant changes, but now that we can afford to, we tend to buy slightly nicer things.
The problem is, there wasn’t anything wrong with the things you were buying or the food you were eating. We survive just fine at our low incomes, but we instinctively spend more when we make more. I’m not saying you should buy anything nicer. Still, there are undoubtedly many things in our lives that we can do without, even with higher incomes. Once you reach a certain level of income, your lifestyle should stop coming along for the ride.
How To Avoid Lifestyle Inflation
Have no fear though, there are plenty of ways to avoid lifestyle creep and take back control of your finances. The biggest win against lifestyle inflation is simply realizing that it’s happening and taking any action. Here are a few ideas to help combat the sneaky finance killer.
Change Your Money Mindset
Do not save what is left after spending; instead, spend what is left after saving.Warren Buffet
The above quote is from Warren Buffet, and he’s pretty good with money. Most of us will spend our money on what we think we need, then save the rest when it should be the other way around. Saving and investing should be the first things done with our money. What we have leftover is what we can spend. It sounds difficult, but you’d be amazed by how quickly you can save hundreds of dollars more each month by simply switching your money mindset.
Have a Budget and Set Financial Goals
If you track your spending for a budget and give yourself something to strive for with your money, you’ll find it’s much easier to avoid lifestyle creep. When we don’t have our money going toward something, it’s only natural that we’d likely end up spending it on something that isn’t necessary. Taking money away from a goal we’ve set for ourselves is much harder to do than spending disposable income. Change your saving habits by giving yourself and your money a goal to reach each month, and you’ll find yourself avoiding any lifestyle inflation. Make sure to set both short-term and long-term financial goals and stick to them
No Impulse Buying
Spending habits that include impulse buying destroy financial freedom. Many of us will see something and get very excited about the idea of purchasing it. With today’s technology, you can order big-ticket items in a matter of minutes, barely giving us any time to figure out if we really need it or can really afford it. Remember, the lifestyle creep motto is “I can afford it now, so why not?”. I’ll tell you why not, just because you can afford to buy something doesn’t mean you should. Take your time when deciding what to purchase and what not to. If you really want something, try to find a reasonably priced version or wait for it to go on sale if possible.
Invest Every Penny You Can
The best thing you can do with any extra cash you have is to invest it. Not in the “get rich quick” type of way, but in the long-term investment way. For every dollar you invest today, you could have seven dollars in thirty years. That is a long time to wait, but you’ll be glad you did. Instead of buying subscriptions and material possessions now, you’ll be gaining financial freedom down the road. Invest in your retirement accounts, brokerage accounts, real estate, and stable investment, and watch your money grow.
Make Investing Automatic
It’s really easy to say you’re going to invest every month, but it could be much hard to actually put your money into an investment account when the time comes. Don’t let yourself even think about where your money is going. Set up automatic investments into all your investment accounts. It goes back to the idea that one, you’re spending will adjust accordingly. Two, it’s harder to not invest when you actually have to cancel it instead of simply skipping a month and telling yourself you’ll do better next month.
Put Most Of Your Bonus or Raise Into Investing
The first thing any of us do when we get a raise is figure out how much more a month we’ll be bringing home. Don’t spend it. The next thing that should be done is updating the automatic investing you now have to use most of that raise. By putting at least 50% of any bonus or raise into your investing, you’ll slow down any lifestyle changes and accelerate your road to financial freedom. Many people will think the extra money should be saved, but investing is the way to go.
Use Side Hustle For Special Purchases
Ok, so there is a big-ticket item you really want. You’ve taken the time to think about it, and you’re ready to pull the trigger. Instead of using your regular income to pay for it, make some extra cash with a side hustle. It will take you longer, giving you the time to really decide if you want it. It will also make you feel more accomplished when you put in the extra work to achieve the amount you’ll need to make the purchase. You’ll also be able to keep your monthly budget, saving, and investing intact; it’s a win all around.
Get Off Social Media
Social Media has its uses, but what it inevitably turns into is a giant comparison machine. We constantly look at everyone else’s highlights and can’t help but compare ourselves to our peers. We see fancy food, vacations, trips, and other highlights and can’t help but think, “I make more than them; I should be doing that stuff too.” What we should be thinking is, “They easily could have done that for less and invested the rest.” I know nobody actually does that, but it should be what we do. In any case, reduce the amount of time you spend on social media, and you won’t get the comparison bug.
Surround Yourself With Others Like You
You don’t have to ditch your current friends, but try to find a community of other people with the same goals as you. This doesn’t even have to be people you can physically meet. With the power of the internet, you can find hundreds and thousands of people like you relatively easily that will be there to help support you. Thinking and acting differently from everyone around you can make it difficult, but having any type of support group, in person or not, will make it that much easier for you to avoid any lifestyle creep.
Why Should I Deflate My Lifestyle
Now that you know about lifestyle inflation, you might be wondering why you should try to reverse it. Being able to afford nice things is not really a bad thing, right? Well, not really no, but you’ve got to think big picture and long term. Here are just a few reasons why you should consider lifestyle deflation, even just a little:
Part of lifestyle deflation is changing your mindset. No longer trying to “Keep up with the Joneses” and spending (or not spending) your money on things that make you happy is liberating. Most people that live a more frugal lifestyle and enjoy the simple things in life end up being much happier in the long run.
Of course, the whole point of deflating your lifestyle is to learn how to live on less money, which can be very beneficial. Having even a little extra cash can help you achieve so many more things. Maybe you want to start a business, save for a big purchase, or even just have an emergency fund that will help you if something happens. Learning to live on less might allow you to pursue a job that pays less than you ever thought you could do; the possibilities to financial success are endless.
Gain Financial Freedom Faster
Finally, by spending less, you’ll have more income to invest. As noted before, you can exponentially increase your net worth over the long term with investing. The longer your more money is invested, the better. There is never a wrong time to be investing; the important part is to start investing, even if you’re a beginner. With intelligent, safe investments, you’ll be well on your way to gaining financial freedom at a faster pace than those who aren’t investing.
How to Deflate Your Lifestyle
So you already suffer from lifestyle inflation. I have good news, for as slowly and sneakily your lifestyle crept upon you, you can deflate your lifestyle the same way. For the most part, it’s doing all of the above, but in reverse. But there are two big ones we should pay attention to the most.
Deflate Your Money Mindset
There are two significant parts to deflating your lifestyle when it comes to your mindset. The first part is to stop buying things to impress other people. You likely don’t even realize that is why you are buying something. Do you need an 80-inch big screen TV, or is part of you doing it to impress others? Be more aware of why you are making a purchase; if it doesn’t make you happy, it’s not worth it.
The other meaningful change is just because you can afford to buy something doesn’t mean you should. Again, going back to the giant TV, you might be able to afford it, but would a 70 inch, 60 inch, or even a 55 inch TV work just as well? More than likely, the answer is yes. This is just one example, but you can apply it to many of the purchases you make. Simply being able to afford something doesn’t make it a good idea. Remember how investing multiplies your money? All buying stuff does is lower the amount of money you have.
Deflate Your Lifestyle Slowly
Lifestyle inflation happens slowly, and so should lifestyle deflation. Make it a point to cut back a little bit every month. Too much change could be tough to do and keep up. By cutting back a little bit at a time, it will be much more manageable, and you’ll be much more likely to succeed. Remember that as you cut back on expenses, start to ramp up the investing. Any amount you can add to your investments is more than worth it.
Lifestyle creep can, well, creep upon us, but that doesn’t mean we can’t fight back. Half the battle is realizing that there are lots of little ways we can deflate our lifestyle and hardly notice the difference. Saving money by cutting back your monthly expenses is key. There are many simple ways to save money and be a little more frugal, and with all that extra cash, you can add to your investment portfolio to be on your way to financial independence.
Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.