I always wanted to know if there was a term that describes the more money you make the more you spend. I recently found out that term is called lifestyle inflation. According to Investopedia, “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 paycheck to paycheck where they have just enough money to pay the bills every month.”
I can’t speak for anyone else but I have fallen into lifestyle inflation. Luckily, I was able to get out of it quickly but the long term effects that it had lasted a while. Here’s a timeline where I fell into it and when I got out of it.
- Graduated from college and started working full-time.
- For the next 6 years, switched jobs 4 times getting salary increases every time
This was the time of the dot com boom and it was so easy to get an IT job and easily get a salary bump each time. During this time I lived with roommates from college who were in the same field and made the same salary. We all had decent cars, went on vacations together, shared adventures together, and rented a home in one of the most expensive neighbors in the DC commuting area. The money was good and so was the lifestyle.
Not sure exactly what made me want to move back home. Maybe I wanted a lifestyle change or that I knew I couldn’t live this lifestyle anymore. Although it was a tough transition, my parents welcomed me back with open arms and this is where my lifestyle inflation turned into lifestyle deflation. I look back and I really did do a 180 lifestyle change. I didn’t see my friends as much. I didn’t go out as much. I was on a quest to obtain IT certifications so I was studying almost everyday even on weekends. I also worked 3rd shift for an ISP company which made it more difficult to see anyone.
- Bought my first condo
After living with my parents for a year, I saved up enough money to put a down payment on a condo. My decision to buy a condo wasn’t because I could afford it. It was more strategic. I knew the benefits of owning a home such as tax breaks and potentially rising home values in the area. Plus it was just time to move out from my parents.
Shortly after, I experienced 2 job changes and both came with salary increases. After starting a family, I bought a townhouse and eventually a single family home. There was a return of lifestyle inflation. I was making more and my family started to grow. Hence the decision to upgrade from a townhome to a single family home. Because I was making more, I knew I could afford more. Could I have stayed in the townhome and not moved to a single family? Yes, I could have. I was on the lifestyle inflation bandwagon.
Fortunately, my lifestyle started to deflate. I was in a lifestyle deflation mode and living with less than before. I stopped buying lunches, stopped paying for coffee, limited how many happy hours I went to, cut my own lawn, fixed my own cars, buying generic instead of name brands, and more. From this point on, all my spending was from a different lens, a perspective of how will my spending affect me financially and what is the return.
One of the key indicators of lifestyle inflation is if you’re living paycheck to paycheck. Many of us are and to get out of this slump, you need to analyze your lifestyle. I had a lifestyle reflection and I believe that is how I turned my lifestyle inflation to lifestyle deflation. Just because you start to deflate doesn’t mean you won’t inflate again like I did. Be aware of lifestyle inflation. If you catch yourself inflating, you always have the option to deflate. If you are interested in following my journey, email subscribe to get alerts of latest posts or follow me on Facebook, Instagram, and Pinterest.
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