You’re used to earning a specific amount of money. Then, something wonderful happens: you begin to earn more. Automatically, you begin to think of all of the things that you can now afford. For example, you can move into a bigger home, get a nicer car, and start taking fancier vacations. However, just because you can afford to spend more doesn’t mean that you should. There are risks of lifestyle inflation that you should consider.
What Is Lifestyle Inflation?
Lifestyle inflation simply means that you spend more when you earn more. Usually lifestyle inflation refers to increased monthly spending after an income increase. However, spending a bonus as soon as you get it may be another type of lifestyle inflation.
5 Risks of Lifestyle Inflation
Of course it’s nice to treat yourself to a little splurge now and then. However, that should be a treat that you budget for and consider. It shouldn’t be a way of life every time that you gain more income. Why? Well, here are five risks of lifestyle inflation.
1. You Won’t Ever Have Any Savings
Or, as Christina Gayton wisely puts it, “There’s no money in pockets that always find something new to spend on.” Money isn’t here for us just to spend it. We should also save and invest it. Therefore, when you get extra money, focus on those things.
2. It’s Hard To Downgrade Again Later
You’re used to a certain way of life. Therefore, if you get extra income and choose to save or spend it, you’re not sacrificing anything in terms of your lifestyle. You’re simply adding the security of savings.
On the other hand, let’s say that you decide to start spending more according to your new income. You move into a bigger home, for example. Or perhaps you just get accustomed to budgeting a lot more than before for fun discretionary spending. It seems okay. But then you get fired, or your partner uses their job, or a sudden medical condition requires more spending. As a result, you need to go back to your old budget and now it seems significantly harder because you’ve gotten accustomed to this new spending level.
This is one of the most common risks of lifestyle inflation!
3. It’s Easy to Always Want More
Gayton also explains how the human brain is wired to want more. We meet a goal, celebrate, and then soon after we hunger to reach the next level. If you allow yourself to think about earning more as a goal that allows you to spend more, then what you have will never feel like enough. And as The Week puts it, this can make you always feel like a hamster on a wheel, a wheel that psychologists sometimes refer to as “the hedonic treadmill.”
4. You Might End Up Competing Against New “Joneses”
The Week also explains the risks of lifestyle inflation as it relates to the concept of “keeping up with the Joneses.” As you know, this happens when we try to acquire the same material goods as others in our social standing in order to feel like we fit in. There’s a lot of psychology around this, and it’s something that leads to unhappiness more often that not.
That said, we almost all do it some extent. We go to the restaurants that our peers do, at least if we want to dine out with them. We pay to see the same level of entertainment. If you end up allowing lifestyle inflation to drive you into the next social strata then you’re going to have a new level of Joneses you end up trying to keep up with. This exacerbates that hamster on a wheel problem.
5. Lifestyle Inflation Prevents Wealth Building
In fact, Ben LeFort goes so far as to say that “lifestyle inflation is the insidious killer of wealth.” Most people think, “I earn more now, therefore I’m wealthier than I was before.” However, that’s not how wealth works. One great way to measure wealth is to consider how long you could continue your current lifestyle if you were suddenly without income. If you spend more, then it really doesn’t matter that you make more, at least not in terms of personal wealth.
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Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.