Lifestyle Inflation: How To Beat It In 8 Steps

I remember the days fondly, when I was just out of college, newly married, and our income was barely supporting us.  Things were tight, but we made it work by driving a couple of old clunkers and eating ramen noodles.  Living paycheck to paycheck was just a way of life, but I knew it wouldn’t last forever.  My husband and I were college grads, building careers, and we had our whole bright future ahead of us.

Do you remember those days?

And like us, you’ve probably been rewarded financially over the years for all your long hours and hard work.

But somehow, with every increase in income, your expenses managed to go up, too.  That extra cushion you were looking forward to was quickly deflated and didn’t amount to more savings.  As a result, you never escaped the paycheck-to-paycheck cycle.

Perhaps you had an illness in the family and medical bills piled up.  Or maybe your family has struggled to maintain consistent income because of layoffs.  Or you went through a divorce and now live on one income.

These are all unfortunate but valid reasons why you may have struggled to get ahead.

*But,* if you can’t seem to put your finger on any extenuating circumstance for your lack of savings, I’ll offer one possible reason:

Lifestyle inflation.

If you have continually increased your spending to match any increase in income, then you’re probably stuck in the exhausting and frustrating grind of working just to pay the bills.  This, my friend, is lifestyle inflation.

Some call it lifestyle creep, for good reason.  This persistent force sneaks into our lives under the guise of deserved rewards for all the energy and time put into a career.  In other words, you earned that new car!

Besides, isn’t that why we’re in this rat race?  To attain an increasingly prosperous lifestyle so we can enjoy the wealth we’ve created?

(Well, also to keep up with Mr. Jones across the street.)

Financial freedom is such a big part of the American Dream, and yet so many remain chained to debt, choosing to run on the paycheck-to-paycheck hamster wheel to maintain every life upgrade purchased with each new rise in income.

I’m not implying that it’s irresponsible to increase your quality of life as you experience more financial success.  It’s natural to want to create a comfortable life for ourselves and our families.

But, if you’ve doubled or tripled your income over the past 25 years, and your financial margins are *still* too narrow for comfort, then it’s time to reverse the lifestyle inflation that’s keeping you from getting out of debt and building savings.

It’s time for a lifestyle downshift, so you can start working on an upgraded future.

Want to learn to live on less?  Grab this FREE checklist of 50 tips to save money!


Why do we even have lifestyle inflation?

Lifestyle inflation is the reason that someone making $500k a year still struggles to make ends meet.  To the person who barely makes it on $75k a year, this sounds ludicrous. And yet, it’s not uncommon.

This is because financial security is not dependent on how much money we make.  It depends on how we manage the money we make.

And if you’re caught up in a mindset that’s more focused on your feelings today rather than delaying gratification for a better future, you’ll forever be running on the hedonic treadmill.

Getting in touch with why you haven’t been living below your means is a good place to start fighting lifestyle inflation. 

Here are four reasons to consider why you may have fallen into the lifestyle inflation trap:

A sense of entitlement

You might be spending that nice raise on new car payments because you think you *deserve* it.  You’ve worked hard to impress the boss, you’ve put in a lot of hours, and you’re entitled to enjoy the fruits of your labor.

Rewarding yourself is not necessarily a bad thing, as long as you’re not shortchanging your future.  Put a monetary limit on rewards so you can funnel most of that additional income into savings.

Keeping up with the Joneses

If you’ve made your neighbor the benchmark for material success, you’ve fallen in the trap of social comparison.  You may even see yourself as inferior to those who’ve acquired a greater number of expensive goods and travel to exotic locations for leisure.

This is especially tempting in today’s world of social media.  So, before you buy that big screen, make sure you’re not just trying to measure up to some external standard.

Seeking a higher status

If you’re buying lifestyle upgrades to keep up with your affluent neighbor, then you probably also want everyone to know.  Especially those that will make you feel like you’re the neighbor to keep up with.  You don’t want to fall short when others are comparing themselves to you, right?

As social beings, we tend to care too much about our relative status to those around us. This can drive a lot of people to spend too much on expensive purchases they perceive as status symbols.  Check your motives before you spend.  Focus on taking care of your future instead of your ego!

The hedonic treadmill

Sometimes we spend money just to chase a rainbow.  We think more money = more happiness, and we try to prove it to ourselves by spending our income increase on a bigger home, a newer car, a better wardrobe, an extravagant vacation.

But, have you ever noticed that whatever “happy” boost you experience doesn’t last?  You probably feel a surge of delight and bliss and you ride that wave for a while.  But, once life normalizes again, that wave slows down, gets smaller, until it’s just a ripple that blends into the big ocean of life.

This is known as the hedonic treadmill, which is a theory that explains the tendency of humans to quickly return to a stable level of happiness despite positive or negative events that occur.  In other words, good and bad circumstances affect our levels of happiness, but these effects fade over time as we return to our “base” level.

This disproves the concept that more equals happier, and yet we continue to spend our income on more stuff as we chase after enjoyment and pleasure.  It’s helpful to keep in mind that those good feelings are just temporary, so the extra expense is probably not worth it in the long run.

Now that you know why you could be perpetuating lifestyle inflation for yourself, it’s time to figure out how to reverse the behavior and its effects on your finances.

How to reverse lifestyle inflation

I have personally struggled with lifestyle inflation my entire adult life.  This is because lifestyle deflation can be very difficult once you’re accustomed to a certain lifestyle level.  Especially if you’re already locked in to a major payment for a mortgage or car loan.

However, if you can see every purchase today as a financial choice that impacts your future retirement, you’ll be able to start aligning your short-term spending with your long-term goals.

Here are a few strategies I’ve used to reverse lifestyle inflation and minimize its effects on our budget.

#1  Define meaningful goals and have a clear plan

One of the best ways to avoid lifestyle inflation is to have goals that are meaningful to you and that you have a deep emotional investment in.  They must be connected to something (or someone) that you value highly, so that the failure of reaching them would result in a significant loss to you.

If you don’t have a strong “why” behind your decision to resist spending more money, you’ll likely fail.  So, don’t just create a goal to “save more money”.  Think about why saving more money could create value in your life.

And then, put together a plan to support your goals.  Because, like Chris Hogan says, a goal without a plan is just a dream.

Break down each goal into small, practical steps that you can start taking *today*.  Know what you need to do to reach your objectives, so your spending decisions can be guided by a clear direction.

This plan should include what to do with any increase in income – a small raise, a big promotion, an inheritance, a big tax return, winning the lottery … everything.

Know where that money will go *before* you get it.  That way, the decision has already been made and you won’t get swept up in the excitement of having more.

You should also “cap” your spendable income once you know how much you need to cover expenses while still meeting your savings goals.  This way, you can continue to increase your savings margin and prevent lifestyle inflation, even as your income grows.

#2  Set up a budget and track your progress

Having a budget as a part of your overall plan is a great way to ensure you live below your means.  And living on less than what you make is the most important step in reaching financial independence.

Tracking your spending also helps you find those leaks that constantly drain your bank account.  When you know where every penny is going, you can make better decisions about how to minimize spending and maximize savings.  For some ideas on how to plug those leaks, you can read how I cut monthly expense by $1,000 in my own budget.

After following a budget for a few months, you’ll start to see patterns in your spending.  This is really helpful information to know as you work to widen those financial margins.  You’ll start to be more critical of every dollar you spend, and how your purchases line up with your values.

#3  Avoid new debt

This one’s a no-brainer, but it takes intention.  If you’re used to pulling out your credit card every time you’re tempted to purchase something on your wish list, it’s probably an unconscious habit by now.

Draw a line in the sand and commit to avoiding all new debt – even if you know your new raise will cover it.  For motivation, go back to your value-based goals and remember why you’re making sacrifices now.

You can also create a debt tracker that is a visual reminder of how much debt you still have to pay off.  Also, take those credit cards out of your wallet and put them somewhere that’s inconvenient to access.  Like the garbage.

#4  Maintain a fixed savings rate

Here is another part you can add to your plan.  A savings rate is basically a fixed percentage of income that someone sets aside for future use (like in retirement).

Maintaining a fixed savings rate means your savings will rise with your income.  Knowing what your goals are, and tracking your money with a budget, will help you determine a rate that works for you.

#5  Treat yourself occasionally

This might seem out of place in a post about avoiding overspending, but it’s valid advice.  If you keep depriving yourself for the sake of spending less, eventually your will power will run out and you become vulnerable to making bad spending decisions.

It’s important to find a balance between how much you save and how much you spend, so you can experience both financial stability and personal happiness.

But always go back to what you value to minimize frivolous spending.  If you prioritize experiences over material goods, you can cut down on purchases that don’t provide long-term contentment.

#6  Stop the comparison trap

If you consider material goods as status symbols that serve to define your rank in society, you’ve fallen into the comparison trap.  This mindset will work against any efforts to live below your means.

We all struggle with this to some degree.  It’s only human.  But if you can become conscious of the motives behind your spending, then you can take measures to minimize the temptation to compare.

Putting a limit on social media is one way.  Places like Facebook and Instagram are just playgrounds for stirring up envy and discontent.

But I think the best way is (again) having a firm grip on what your values are.  Having a value-based spending plan will keep your purchases connected to what’s truly important to you – regardless of what everyone else is doing.

#7  Practice delayed gratification

When you resist the temptation of an immediate reward so you can experience an even better reward later, you’re practicing delayed gratification.  And if you can master this habit, then you’re setting up your future self for financial wealth and security.

That sacrifice can be as small as a Starbucks frappuccino or as large as a bigger home.  Learning how to delay those pleasures now can help you create a retirement that’s much more rewarding than either of those and everything in between.

Saying no to what you want today will help you avoid lifestyle inflation, and put more of your income into savings for the future.

#8  Adjust your mindset

Always remember, my friend:  you have control of your thoughts.

And when you are fully aware that the actions that lead to an “inflated” lifestyle each begin with a *thought*, then you understand the power of your mind and the consequences those thoughts create.

Then, you know you are not only 100% responsible for the financial situation you’ve created, you’re also 100% responsible for how you can change it for the better.

It all starts with the thoughts that make up your mindset.  Adopt more positive and helpful thoughts, and you create a more productive mindset.

I know that sounds too simplistic to even be true.  But I also think that’s why most people don’t spend time analyzing how they think.  They don’t consider how their thoughts lead to feelings which lead to actions.  So, they stay stuck in the same destructive patterns.

I would suggest you spend some time in self-reflection, scrutinizing the connection between your thoughts, feelings and actions.  Identify those thoughts and beliefs that are creating negative results in your life.  Then, commit to picking better thoughts, so you can experience better results.

You have the power, you just need to be intentional with it.

Don’t forget to download this FREE checklist of 50 tips to save money!


Are you ready to change?

I once read someone describe lifestyle inflation like a cancer.  It starts slowly and silently, but continues to spread and worsen without treatment.  It will destroy your financial health and your ability to live a fulfilling life.

Are you going to wait until you’re in serious pain to do something about it?  Or will you make a commitment now to change?

I encourage you to put your future first, and do what’s necessary today to ensure the financial security you’ll need in retirement.  Get in touch with what you deeply value, and then prioritize those values above the temporary enjoyment you feel with buying something new.

Make the decision to quit lifestyle inflation today.  When you do, you’ll accelerate your journey toward financial freedom.

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Lifestyle Inflation: How To Beat It In 8 Steps


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