How to Avoid Lifestyle Inflation … and When to Embrace It

A strange thing happens every time my income increases. My life magically gets… easier, better, and happier.

Getting my very first raise at work made it easier for me to pay off my student loans ahead of schedule. That meant the money I used to spend on student loans could instead be spent on making my life more comfortable. And that meant moving out of the house I rented with six roommates and finally buying decent food.

Getting a job that cut out my daily commute allowed me to spend more time doing things I love instead of impotently cursing the traffic. I could get drinks with friends after work or go to the climbing gym, both of which cost money. Or, for free, I could stand by the highway yelling “SUCKERS!” at passing commuters at 5:30 p.m. every day!

And getting a new job at almost double my previous salary meant I could afford things I previously thought would take years of saving. Plane tickets to a friend’s destination wedding in Mexico. Drywall for my unfinished basement. Eating at a shmancy restaurant without checking the menu for prices.

If all of this sounds suspiciously like lifestyle inflation, that’s because it is! And yet I feel no guilt over inflating my lifestyle from time to time when my income significantly increases.

This is generally considered a cardinal sin of personal finance. It’s right up there with buying lattes or taking the name of Dave Ramsey in vain. So let’s unpack that.

How to define “lifestyle inflation”

Lifestyle inflation essentially means that when your income increases, so do your expenses. And it’s generally considered bad because it means that no matter how much you earn, you’ll never be financially free.

Here’s how the math works: You get a 10% raise, and instead of increasing your savings rate at all, you just spend 10% more money on stuff. You step up your lifestyle to make it 10% more bougie, 10% more expensive.

It’s seen as one of the great obstacles to achieving financial independence. Can’t seem to save any money every month? Well, that’s because you’re inflating your lifestyle every time you get a raise! Instead, you should endeavor to keep your expenses exactly the same, no matter how much your income grows.

Why it’s so easy to inflate your lifestyle

George Leigh Mallory, when asked why he wanted to summit Mount Everest, simply answered, “Because it’s there.” Weirdly enough, this is the same answer I give when asked why I ate all of the leftovers!

It’s also, for many, a reason to spend money.

This is honestly not a judgment of those who can’t hold onto money without spending it immediately. Some of us just have slippery palms! And there are a lot of reasons why someone might spend, rather than save!

One reason might be an inherent mistrust of banks and financial institutions. Which I don’t blame at all. Another might be because someone is living in a financially abusive situation.

And have we mentioned the disability rights movement recently? Now there’s a demographic constantly financially messed over in new and exciting ways. One of the many ways government policy discriminates against disabled people is by removing their ability to legally save money and still collect disability insurance.

So again… I’m not here to judge.

But beyond these individual reasons, I do think there are strong cultural forces encouraging lifestyle inflation.

A cycle perpetuated by one-sided comparison

Once someone achieves a comfortable way of life, it’s a little baffling why lifestyle inflation can still take hold. After all, there’s only so much you can spend, right? At some point, you have to out-earn even the wildest spending tendencies, right?

Yet clickbait articles about households struggling to get by on $400,000 a year seem to imply that there is no end to the potential for lifestyle inflation.

I have my own theory about why this is the case. And that theory is definitely more complicated than humanity’s collective urge to “keep up with the Joneses.”

My theory goes like this: when situating ourselves within the socioeconomic hierarchy, we tend to compare ourselves to those who have more rather than those who have less. Thus, a person making $400k a year doesn’t feel wealthy because they’re looking up the hierarchy at the millionaire… not down at the minimum wage worker.

And yeah, compared to Elon Musk, most of the top percentage of income earners in the country ain’t got nothing. But since when does comparing yourself to Elon Musk in any way make sense? Most of us also won’t father spawn with literal alien warrior princess Grimes, either. Musk, along with the entire top 2% or so of income earners in the country are outliers that skew the whole data set!

It would be far more logical to compare yourself to the bottom 98% of income earners to determine just how “rich” you are. Look at those who have less than you before deciding if your lifestyle needs to be inflated. Because this one-sided comparison to those who have more will make you constantly feel lacking.

So, in other words… lifestyle inflation is perpetuated because y’all want to keep up with the Joneses. Let it never be said that I ever wrote in 5 words what could be said in 500!

One weird trick to avoid lifestyle inflation!

If your goal is to avoid lifestyle inflation at all costs, then the solution is ludicrously simple:

  1. Automate your savings.
  2. When you get a raise, increase your savings rate an equal amount.
  3. That’s it. That’s the whole trick.

Automating your savings is a good idea in general. It’s certainly easier to save money when you can just set it and forget it instead of making it an active step you have to take with each paycheck. Plus, the theory is that you won’t miss what you never had. So don’t give those savings the chance to end up in your checking account where you can easily spend them. Stuff them directly into a savings or brokerage account instead, where they’ll be safe from your spendy ways.

Step two requires a little more self-control. It means revisiting your automated savings every time you get a raise. And doing some math.

If you get a 10% raise, then increase your savings rate by 10%. You’re technically making more money, but nothing will change about how much of it you spend. If you make $50k a year and you live on $30k of it, then when you get a new job at $60k a year, you should continue to live on $30k a year. And like magic, you suddenly have a 50% savings rate!

So don’t change your lifestyle. Don’t increase any line item on your budget. Just stick your raise in savings and pretend it never happened.

A less aggressive approach

But let’s say you’re not so militant about lifestyle inflation. Maybe you want to make a conscious effort to save some of that money, but you could also really use some of it to improve your life.

Move into a better home. Start buying healthier groceries. Buy running shoes or exercise equipment to help you stay fit. Take a vacation. Go to the dentist for some long-delayed dental work. Buy a warm winter coat. All of these can demonstrably improve someone’s life. And they all require money.

As with so much of our financial advice on how to indulge yourself, it doesn’t matter what you do with the money or even how much of it you spend, so long as the “what” and “how much” are intentional.

Intentionally choose what you’re going to buy with your increased income to give yourself a better life. And intentionally choose how much of it to spend on life-betterment!

… Then bank the rest. You’ll be embracing lifestyle inflation, but not to a damaging degree.

A little lifestyle inflation isn’t a bad thing

Money is a tool. You’re supposed to use that tool to make your life better, not let it rust away in a shadowy corner of the garage.

This is why a little lifestyle inflation isn’t necessarily a bad thing. When your income increases, it’s okay to use some of that extra income to improve your situation. Don’t feel guilt about using the tool of money for its intended purpose: to make your life better.

For a lot of people, the best use of their inflated income will be to increase their retirement plan contributions. For others, it’ll be to increase their debt repayments, or make regular deposits to a brokerage account, or start pursuing early retirement and financial independence. These all come with the Financial Advice-Giver Seal of Approval.

But for some people, an increase in income could be their ticket out of a basement apartment they share with sixteen cockroaches and the trumpet player for a ska band (I don’t know which is worse) and into a more expensive—and more habitable—home. And that is perfectly fine.

Don’t be bullied into avoiding lifestyle inflation just for the sake of avoiding lifestyle inflation. Or for proving your frugal, minimalist cred or whatever! If your life sucks and you could use a raise to make it better…

Whoever said “money can’t buy happiness” was a jerk

Lately, I’ve been thinking of the old adage “money can’t buy happiness.” Specifically, I’ve been thinking about how I hate it.

Because yeah, strictly speaking, money can’t buy happiness. But being happy is a whole lot easier when you can afford therapy.

It’s a wet blanket of a judgmental platitude. It feels like it’s trying to shut down any celebration of increased income. Worse than that: it almost makes it feel like we should be ashamed of making more money and using it to inflate—no, improve—our lifestyles. Which again, is exactly what the tool of money is for.

The subtext of “money can’t buy happiness” is that we’re focusing on something as petty as money when we should be focused on… inner peace???

Poverty has violent effects on mental and physical health. This is a fact. So to minimize the effect of money on happiness in light of this data is… downright insulting. It’s a condescending and patronizing way of enforcing a status quo that blatantly favors the bourgeois—Oops! Sorry folks. I’ve just been informed my socialism is showing.

The point is: I think we’ve unfairly villainized lifestyle inflation. Yeah, you should absolutely try to keep your spending in check. But an intentional, moderate use of raises to improve your lot in life is not a bad thing. It’s literally what that money is for. Use it to invest in yourself and your happiness. No guilt, and no judgment!

Let’s open it for discussion. What do you think about lifestyle inflation? Should you avoid it at all costs? Or is it okay to indulge a little bit when your life could use improving? Do you have a personal tale of positive (or negative!) lifestyle inflation? Tell us all about it in a comment below.

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