How to Avoid Lifestyle Inflation

“It’s not that I am spending money badly, it’s that I don’t make enough money to spend.” This was said to me by someone who read our article “Can you afford to spend a bad dollar?” The reality is, it doesn’t matter how much some people make, after the first couple weeks of getting a salary raise or moving into a higher paid position, they are back to counting pennies. “Lifestyle inflation refers to an increase in spending when an individual’s income goes up. Lifestyle inflation tends to become greater every time an individual gets a raise, and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals. Lifestyle inflation is what causes people to get stuck in a cycle of living pay cheque to pay cheque where they have just enough money to pay the bills every month.”

As we wrap up our series on being financially prudent, I want to leave with you an excerpt from G. Brian Davie’s article titled “10 Ways to Avoid Lifestyle Inflation – Spending Less When You Earn More.”

“Socialize with like-minded people: The impulse to keep up with the Joneses and feel jealous about money is simply human nature.

Because you want to prove you can afford the same things as your friends, you spend more than you want to, especially when you get a bump in salary.

That’s precisely why it pays to spend time with friends who have similar lifestyles and budgets as you.

Cultivate friendships with like-minded people who share your financial goals. Hang out with people who don’t mind driving an older-model car or living in a less posh neighbourhood to achieve their ideal lives sooner.

Aim for “Stealth Wealth”: Stop measuring your success in life with material goods — yours and your neighbours’. The true measures of success are health, love, friends, family, and experiences. You don’t need to prove anything to anyone.

The paradox of wealth is that the more you spend on the trappings of wealth, the less wealth you actually build. Fancy homes, cars, and clothes might make you look and feel wealthy, but they drain precious dollars from your real wealth: your investments.

It’s why financial experts encourage “stealth wealth” rather than spending as much as you can technically afford.”

“Getting personally and financially fit are really similar. Your calorie intake is like your spending. Eat fewer calories than you use, and you lose weight. Spend less money than you make and you save.” JT, founder of a personal finance blog

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