5 Ways to Beat Lifestyle Inflation

By Chika


Last Updated: August 25, 2021


Many of us fall into the lure of lifestyle inflation. As soon as we begin to earn more income, we tend to spend more. Since economic power is a reflection of social status, we tend to increase our lifestyle to show that we are in a new social class. As such, as earnings increase it is natural to want a better car, move into a bigger house or expand your wardrobe. 


This goes against the dictates of common sense which implies that as we earn more, we should be able to save and invest more because we have a higher disposable income. However, most times, this is not the case. According to data released by the US Bureau of Labor Statistics, most households continue to spend at least 50% of their income on housing and transport, regardless of how much they earn.


Lifestyle inflation: The unseen enemy


Lifestyle inflation is very sublime and not easy to detect. Most times, the spending we make to match our income bracket occurs unconsciously. This is because needs are insatiable and constant. We had those needs before the extra cash came in, so it's only logical that we want to sort them as soon as money comes in. 


However, lifestyle inflation can be a clog in the wheel of our financial independence. The lure of extra income can come with a false sense of security. We feel immune from the erstwhile financial troubles which kept us on our toes and forced us to live frugally. We believe that the future is more secure and as such, there is little incentive to save and invest in it.  


This false sense of financial security could blind us to the reality surrounding the true state of our finances. Most times, when we realize it, it is often too late and then we ask ourselves how our finances could be in a poor state despite how much we earned. 


Most of us focus on increasing our income without putting the same effort into learning how to manage it. Learning how to manage your finances is more important than knowing how to increase it. Ever heard of a lottery winner that went broke after a few years? It is natural to crave convenience and comfort but we shouldn’t let it come at the expense of our long term goals.


5 ways to beat lifestyle inflation


#1. Be conscious of your spending choices

The most obvious place to tackle lifestyle inflation is in our spending. We need to be conscious of the spending choices we make. Perhaps more important, we need to recognize areas where we have increased our spending as compared to our previous income status and see where we can make adjustments. Paying close attention to our budget can help us with expenses that we do not need. Like having dinner at that fancy restaurant every weekend, or taking an extra vacation we take every year. As the saying goes, the devil is in the details. This also applies to our spending choices. If we can control our spending, we can tackle lifestyle inflation. 


#2. Look for every opportunity to save extra money

Another effective strategy that we can use to beat lifestyle inflation is looking for every opportunity to save some extra cash. We may buy groceries and provisions in bulk, which reduces the average cost per unit. You could consider buying that electronic gadget or car when the dealer is offering discount sales. You could wait for clearance sales to get that designer bag you wanted. Saving extra cash means that we have more to save and invest. It is also a sublime way of maintaining the lifestyle we want at a cheaper price. 


#3. Try to simplify your needs

We all have needs, but we are not all willing to pay the same price for those needs. For example, we all know we need a house, however, we do not all share the same ideas and tastes when it comes to the type of house we want. While some may need a single-family unit, others may want a 7-bedroom mansion with an exclusive view. Recognizing that a house is a house and that we can’t sleep in more than one bedroom at a time, then this may help to put things into perspective. 


#4. Separate your needs from wants

When our income increases, our needs do not increase as much as our wants. If anything, we experience an exponential increase in the wants we want satisfied. For example, we all need to eat, but we all want different food. The irony is that no matter the food we eat, the same purpose is achieved - the satisfaction of hunger. The desire to eat is the same, but the feeling or taste we want is different.


To tackle lifestyle inflation, you should be able to sift your needs from your wants. If you want to pay extra for something, ask yourself if you want it or need it. Even if you think you need it, try to clarify why. This in essence lets you know what value you would derive from that added luxury you want to acquire. 


#5. Increase your savings to match your increase in expenses

This is a trade-off strategy that can enable us to have the best of both worlds - a more comfortable lifestyle, with increased financial independence. Not all expenses which accompany an increase in income can be undone. 


For example, we may decide to marry or have kids because we believe that we are more financially secure. These actions come with extra responsibilities and thus extra expenses. 


We can compensate for these extra responsibilities by equally increasing the percentage of our income we choose to save and invest. The notion of having to continually invest also acts as a check on our expenses and ultimately reduces the effects of lifestyle inflation. 


Alternatively, we can go further by allocating a percentage increase to our savings if our expenses increase by a certain percentage. For example, for every 10% increase in our expenses, we can allocate a 5% increase in savings and investments. We can decide to take out a mortgage and pay towards having a home rather than renting apartments. This trade-off ensures that we do not shortchange ourselves. 


Final Word

Lifestyle inflation is an unseen enemy which can easily derail us from achieving our long-term financial goals. We like to think that the good times would last forever so we get lackluster towards saving and investing. The false sense of financial security offered by a more convenient lifestyle can leave our rear end exposed to unforeseen circumstances.

If we can identify lifestyle inflation, we can reach our financial targets faster because we can afford to put the extra money to work for us. It entails having to discipline ourselves mentally to be able to live frugally amidst the obvious increase in income. It has more to do with our financial behavior than our ability to generate more money.


 By following the steps outlined above, we can reduce the effects of lifestyle inflation on our lives.


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