3 Ways to Avoid Lifestyle Inflation
By Kate Furlong
One of the fastest ways to destroy your chances of wealth is to succumb to lifestyle inflation. Everyone is susceptible to it to some degree — obviously the ramen noodles you ate in your unheated apartment when you were 23 won’t suffice when you are 50 with a family to support — but if you let it happen too fast, or let it go too far, it can quite negatively affect the amount of your income that you can put towards securing your financial future. So how do you make sure you don’t become a victim to an increased cost of living?
Make goals. Having goals is key to keeping you on track. Whether you want to pay off your mortgage by a particular date, have a certain amount saved for retirement by your 40th birthday or put your kids to college debt-free, having goals that you are working towards can make it easier to say “No” to that pricey vacation or put off a new car purchase by another year. Keep yourself on target by updating your progress each month and you’ll start to realize how unnecessary purchases and upgrades are going to make it more difficult to accomplish your objectives.
Ignore your next raise. If it doesn’t feel like your income is getting higher, you’ll probably be less likely to spend as though it is. The next time you get a raise, put the money straight to work, either by increasing the amount you transfer to savings each month, paying down debt or increasing your retirement contributions. You’ll get the benefit of a higher income in that you’ll be saving more and you won’t inadvertently up your expenses by more than you’ve increased your salary.
Don’t pay attention to your neighbors. Perhaps the biggest culprit of lifestyle inflation is attempting to “keep up with the Joneses.” Looking at your neighbor’s new house renovation or three cars in the driveway may make you want for something that you didn’t even think you needed. But, remember, everyone has different salaries, debt levels, goals and priorities so it really does help to just keep your own in mind. Also, remind yourself that it will never stop – if you want three cars in the driveway now, you’ll want four next year as soon as your neighbor upgrades. And, whether you can afford it or not, think about whether it’s really in line with how you want to spend your money, not how your neighbor wants to spend his.