Lifestyle inflation comes for us all, just like taxes and death. Fortunately, you can avoid this one without getting locked up or becoming immortal.
What is Lifestyle Inflation?
It’s when you come into more money, through a raise or a new job, and you adjust your lifestyle habits accordingly. You start spending more because you have more to spend. Maybe you eat out more often or you start living alone. Maybe you stay in a hotel rather than with friends when you get out of town. Each individual act seems small but all of a sudden, you’re living a new lifestyle where you have to spend everything that your new salary gives you. When you made $25K a year, you lived on that. But now you’re making $40K a year and all of a sudden you need that much to live. BOOM! Lifestyle inflation.
It’s a real thing that’s happening all day every day to people around the globe. But it doesn’t have to happen to you! You can and should get raises and new jobs and you should definitely be trying to bring in more money. That’s always the dream! Just don’t throw that new-found money away on lattes and hotels with over priced omelettes.
How to Avoid It
The number one way to avoid lifestyle inflation is to keep living like you were when you made less. You can bring in all the money in the world, but all that’s going back out is what you’re used to spending. Don’t lease or buy a new car, keep driving your old one. Don’t start eating caviar for each meal when last month pasta and veggies treated you fine. I’m sorry to be the one to tell you but: you are not Kim Kardashian or Jay-Z and you can’t spend like them. #hardtruths
DO start sending more money into your savings. Ramp up the automated monthly deposits you make into your savings or IRA accounts. DO pay off any debt you have. DO double your emergency fund. DO start thinking long-term with your money.
Try and maintain your old level of spending for at least a year. If all goes well and you’re still earning more after 12 months, maybe you can make some smart and sensible upgrades. At this point in our lives, millennial are beginning to think about first homes, marriages and getting out of debt. Figure out your financial priorities and start funneling your new found money towards those!
If you avoid lifestyle inflation for at least a year, you’ll have a year of quality savings behind you and a new understanding of your money, lifestyle, and income. You can start preparing for the next phase of your life in the manner you want. Ask yourself what’s better for you: that blurry weekend in NOLA or having a year of mortgage payments in your savings already.
It’s YOUR Money
No one can spend your money but you, and no one knows what will make you happy with your money more so than you. If you’ve just fought your way out of student loan debt and then got a big raise, do you want to go back into debt just so you can drive around a new car? Do you want to increase your rent and pay for all utilities by yourself just so you can say you live alone? Make sure your decisions are the best for your financial health.
And yes, DO treat yourself to a delicious meal and tasty drink for getting your pay bump. You did earn it! Just make it a one time special occasion thing, not an every Friday night thing.