Lifestyle inflation – the silent assassin!

I’ve written previously about the millions of people living paycheck-to-paycheck. It doesn’t matter how much you earn but rather how much you spend. According to a recent Nielson survey, 25% of American families earning more than $150,000 per year still live paycheck-to-paycheck, so even the wealthy aren’t immune. Apart from poor financial habits, a key reason for this ongoing money stress, for many people, is lifestyle inflation.

It is a gradual, subtle and common problem that’s killing our collective finances. The harmful effects occur over time and in a way that often goes unnoticed.

Like the fable of the boiling frog, who didn’t perceive the danger of the increasingly hot water and was slowly cooked to death, many of us have been unwittingly turning up the financial heat in our own lives by trying to keep up with the Joneses or “upgrading” our lifestyles when we get a payrise.

Most of us have been victims to the silent assassin of lifestyle inflation. Our spending inches up year-on-year, and what was once something you considered a luxury item is now a must have “need”.

Lifestyle inflation, a silent assassin

Those moments when you convinced yourself that you deserved it because you work hard, or that a “one-off” treat won’t hurt, have added up over time. The aggregate impact of decisions to get a nicer couch, second car or bigger house increase our monthly spend commitments and raise the bar of what we need to earn.

What is lifestyle inflation?

Ever had the feeling that you can’t get ahead in life? That there is never enough money, even though you got a payrise a couple of months ago?

Sometimes also called lifestyle creep, this is a situation which occurs slowly and over time. Essentially, it involves increasing one’s spending when income goes up. There is more money coming in, but more bills and ongoing costs to pay.

As an example, my wife and I started out living happily on very basic meals and in very basic accommodation. Over time our family grew as did my income and expenses – nicer clothes, eating out more, bigger houses, additional cars and the latest gadgets. While I was earning much more, the net amount going into our savings account was often very similar.

As noted above, it doesn’t matter how much money you make – lifestyle inflation can still impact you. Spending of extra money you make in the short term gradually becomes the new norm, rather than positively contributing to your financial goals.

How to avoid lifestyle inflation

If only I knew then what I know now, I could have easily avoided the lifestyle creep our family experienced. Instead of increasing our lifestyle we could have been well on our way to financial independence.

Lifestyle inflation is something to be aware of early in life, and it’s then relatively easy to mitigate the effects, especially with the correct mindset and systems in place.

Spend less than you earn

This is really basic financial common sense, but too often not implemented by many people, as evidenced by the ever increasing amount of consumer debt burdening society.

Just because you can afford it, doesn’t mean you should buy something or take out new debt. Too many people are trapped in a never-ending cycle of consumerism. For example – You work hard and have a long commute; having just received a pay rise, you decide to upgrade to a new, nicer car, which in turn has increased your monthly commitments and reinforces the need to work in that job that you tolerate just because it pays well. Next pay rise, something else takes your fancy and the cycle continues without your bank balance getting any healthier.

Automate savings and pay yourself first.

Set up automatic withdrawals and deposits so that the money is gone from your everyday bank account and isn’t accessible to spend. Putting a system in place to encourage good behaviour and avoid relying on will power, makes the habit of saving and investing easier and more likely to occur. If you don’t have the money sitting around to spend, lifestyle creep is less likely to occur.

Set a comfortable baseline and monitor regularly

Monitor your spending and budget – set alerts when you deviate from your stated goals.

It’s easier to adjust quickly and early than 15 years down the track !

With a good and realistic budget in place, you’ll know exactly what you can spend each month and avoid the silent assassin.

Pocket the wins

When you get a windfall gain and access to some extra money you didn’t previously have, it is very easy to justify buying new things that you really don’t need.

Decide up front to allocate “extra” money to savings. This might be a small inheritance, a tax refund, a work bonus or interest rate decrease on your mortgage.

This concept is even more powerful when applied to ongoing gains like a pay rise. Stashing that money away rather than spending more will set you up financially.

More stuff doesn’t equate to a happier life

Identify and find ways to avoid impulse purchases and unnecessary things. Be aware of your spending triggers. Unsubscribe to shopping emails, sales and other marketing incentives to get you to buy more and more possessions.

A new toy may give you a temporary endorphin hit but the effects are short lived and leave you looking for the next thing. The latest and greatest isn’t really important, despite what the advertising industry tries to convince us otherwise. Things are just things and don’t ultimately bring you any long term joy.

How to reverse lifestyle inflation

Lifestyle inflation is easy to avoid but hard to reverse. Back tracking on lifestyle creep is unfortunately harder than avoiding it in the first place, as we become used to a new “better” way of living and what we once considered luxuries are now necessities.

Decide on your why

Change won’t happen without tangible, realistic and specific goals.

This end goal will be your guiding light in reversing lifestyle inflation. It will give you something to aim and look forward to. It also gives you some criteria against which to consider future purchase decisions and choices. Will they positively contribute to or derail your financial end goal?

This “why” will help you prioritize near term demands and long-term desires. For me it’s the ambition of financial independence and the freedom to pursue other ambitions without the pressure of needing to work.

Your current budget is lying to you.

We have always keep a detailed budget and tracked out spending. The problem isn’t with how we record and monitor our expenses, but rather what we feel is required for our standard of living.

The insidious problem with lifestyle creep is that it becomes the new normal. Like any good budget, you allocate and put aside money to cover your known expenses. Unfortunately your expenses have grown and become inflated over time.

To reverse lifestyle inflation you need to throw the current budget away or it will simply perpetuate current spending and savings habits.

Instead you’ll need to develop a new budget. Every expense line needs to be challenged and assessed against your new goals and desired way of living. This version of the budget becomes your new baseline.

Welcome the pain. This is going to hurt

Stopping future lifestyle creep should be relatively easy now you have awareness of the problem. Unfortunately reversing the trend will be painful. It’s going to involve implementing what you perceive to be a lifestyle “downgrade”. Embracing a degree of frugality will be a tough mental shift. Acknowledge that upfront and live with it. As the saying goes “Hard choices, easy life. Easy choices, hard life” and you need to flip the script.

Let the past inform the future

Take a hard look at your current spending habits. Reflect on where you came from. Imagine trying to convince your old self that a $100+ monthly phone bill is a necessity. What is really needed and where have you let things slide a bit too much?

Gameify a change in habits

Gamify this lifestyle change and set yourself a personal challenge to reverse the trend. I’ve currently embarked on a year of No New Stuff. In the spirit of consuming less, spending less and hopefully learning to live with less, I’ve decided to undertake a year long challenge of not spending any money on clothes, shoes, books, magazines, household items or gadgets.

Set yourself targets and non-financial rewards to help reverse the impact of lifestyle creep. You might find during this process that you actually enjoy the challenge of not spending money on things you used to, and that a simplier way of living could work.

Get on the same page

If you are in a relationship or have a family, ensure there is real alignment about what you’re trying to achieve. The lifestyle everyone has been used to and considers “normal” is about to change. Making change as a team and having others to keep you accountable will be helpful in combating and reversing the impact of lifestyle inflation.

Embrace simplicity and gratitude for what you already have

Focusing on the essential and things that truly matter, rather than the unending pursuit of more, will be key in getting your finances under control.

A simple life isn’t driven or focused on money: indeed, the journey towards a better, simpler and more content life has the positive side-effect of negating the power of money over our lives and thoughts. Less is definitely more.

Finding a new equilibrium

The ideal is to find an affordable and comfortable lifestyle you can commit to long-term. Of course it okay to occasionally inflate your spending, but do so conciously and with intention.

Your new baseline should be sustainable. Realistically no one wants to return to the days of being a broke student. Likewise no one wants to live paycheck-to-paycheck regardless of earning power, simply because of bad financial habits and ever an increasing set of “needs”.

Find a good balance at a level you can stick to.

Avoiding or reversing lifestyle inflation is worth it!

The reality, at least for me, is that you don’t need to spend or have a lot to be happy. Being more conscious about our finances and spending habits has meant my perspectives on societal norms has shifted. I look around now and see how many people (I was one of them) are caught up in a machine cycle of rampant consumerism. This inevitably leads to lifestyle inflation and a detoriation in financial and mental health.

Enjoy a life of balance, prioritize experiences and things you enjoy but don’t mindlessly consume. Many people don’t realize the trap of lifestyle inflation until they are much older and wonder what happened to all of their money.

True inflation, the cost of items and fall in the equivalent purchasing value of money, naturally causes the cost of living to increase over time. Beyond that though you have a choice. Combating lifestyle inflation is totally within everyones sphere of personal influence. Don’t let the silent assassin claim you as yet another victim!

Thanks for reading

Mr Simple Life

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20 thoughts on “Lifestyle inflation – the silent assassin!

  1. I’m impressed by your no spend year challenge! Which category will be hardest? Although I’m fairly frugal by most standards, I’d struggle with not buying for a year, esp books and clothes! I have a one in-one out policy with clothes and donated most of my physical books… but not buying would be v tough!

    Lifestyle inflation is such a biggie… Not being the most conformist helps! We made a conscious decision when we bought our house not to go up to how much we could afford but to how much we needed to be happy with some room to grow into as we didn’t want to feel the need to move again within 10 years. You really have to know what makes you happy first and what doesn’t. So sometimes it does require some mindless consumption before the epiphany.

    Liked by 2 people

    • It’s very early days of my No Stuff Challenge but so far so good. It sounds like you’ve made a smart decision with your house.

      Totally agree with comment about figuring out what makes you happy and how that takes a bit of experimentation. Unfortunately I don’t think many people figure it out and just keep mindlessly spending for most of their lives

      Liked by 1 person

      • Agree, I do think imho that some people seem to be just so wired to accumulate (consume) that it is hard to over ride it even if they are aware on some level that it makes them unhappy. Some don’t have the self reflective capacity for different reasons. I also wonder if some people seek immediate pleasures (spending lots) as they struggle with finding ways of happiness through non material things, like satisfying relationships, broad interests etc.

        Great to hear you’re dealing well with the challenge so far! Such a commitment! I had read that book. I’m not sure why but I didn’t find it as inspiring as I’d hoped. Look forward to hearing how you get on. Certainly fits with where your various musings have been meandering!

        Liked by 2 people

    • The focus of this challenge for me is no new stuff ie. material possessions. I’m still happy to catch up with friends and have the occasional meal out. You’re right that spending absolutely nothing would near impossible, joyless and isolating.


    • Curious, what are the normal work environment stimulations?

      Definitely much more achievable without restricting eating out etc.

      However some of my spending must be to help cope with work and life. Eating breakfast out, eating tea out after work… that’s probably become a key spend for me especially during v busy periods and tired.

      I’d like to do a no spend month, but it would probably mean delaying purchases, knowing me, which defeats the object. For now, getting my savings rate at the mid 60% is my goal which does mean buying relatively little. I buy for my son occasionally though no where near as much as I’m tempted to!

      Liked by 2 people

      • I come at it from a slightly different perspective as I work from home and am living a very frugal life. So just being in a work environment and having the novelty of other people around me would be enough social life to keep me going for a while. Eating out is generally restricted to a few times a month at the moment and I don’t have any family nearby. I have been on a no spend challenge since I came to Manchester 5 years ago because I’ve had to cut back. I don’t buy any luxuries or treats any more. So what I wanted to know is how someone has ‘fun’ without spending money on eating out, drinking out or having to spend on travel to get somewhere?


  2. I’m just trying to get a comparison with my no spend rules and what you can do that doesn’t involve spending money because I have to admit that life does get pretty sterile. That said I work from home so I don’t have the normal work environment stimulations to keep me from going insane and the ‘occasional meal out’ probably isn’t enough for me right now.

    Liked by 1 person

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  6. Personally, this hit home. I wrote a blog post a week back on personal budgeting and didn’t really but a name to the concept that was felt, so this post does a deeper dive. I agree that it’s easier said than done in terms of scaling back spending. For me, I had good incentive to scale back to manage my needs, but it was a good moment to come back to the reality of the situation and really appreciate the subtlety of lifestyle creep. Great post!

    Liked by 1 person

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