You’re probably heard of lifestyle inflation, especially in today’s current economic climate. You may even feel its influence whenever you get a pay raise or bonus. With an increase to your wage you probably feel you deserve a better car and a bigger TV; with a yearly bonus you may even think you can pay for a extension to your house. Rather than banking it and keeping your cost of living stable, you spend it instead. While I’m not saying you should never spend your money, keeping your lifestyle inflation under control will benefit you and your finances significantly in the long run. When things are rough (as they arguably are now) you will really appreciate the benefits.
Lifestyle inflation isn’t just about how much money you save and what debt you are in, so I’m not going to cover that topic too much, you’ve probably heard it all before. However, here are a couple of things to bear in mind. The problem with making more money is it usually means you can also take out bigger loans. Does this mean you should use it? No! And just because you are putting money aside, doesn’t mean it’s not working for you. It’s recouping interest and it can even be used as an emergency fund should the need arise. The thing about lifestyle inflation though, not unsurprisingly, is that it’s more about the cost of living the lifestyle you are on. With that in mind below are my four key strategies for keeping those costs in control.
- Buck trends
Somewhere along the line, it became important to have an HD television, an iPhone and a ridiculously expensive dress from a trendy designer, as though it were a barometer of how well off you are. However, if you want to keep lifestyle inflation in check you want to avoid this rat race. If your neighbors want to dig themselves into debt to create the nicest house in the street that’s their call. But in the evenings when they are frantically calculating how to pay off the bills will it be worth it? - Choose your commitments wisely
Whether it be your broadband rate, your phone package, your gym membership or your cable deal, choose the one you can comfortably afford. These are commitments (usually monthly) that very easily build up if you don’t keep control of them. It’s no good getting the best TV package with every channel available when you can barely afford it. I personally have a basic package because I’m not at home to make the most of having every channel available. - Buy just what you need
It’s the most obvious lifestyle change you can make but often the hardest, because our society revolves so strongly around consumerism. Even though we are incredibly privileged to have so much choice, it can be difficult not to let it get out of hand and very often leads to competition. I’m sure you can all relate to those instances of oneupmanship (who has the fanciest phone, console or car). - Home is where the heart is
Ask almost anybody and they will say they want an home of their own (if they haven’t already got one). Unfortunately, buying your own house is typically one of the biggest financial decisions you will ever make and as has been proved a lot recently, people will put themselves into huge amounts of debt to get an home. However, the bigger the house you get the bigger the expenses that come with it, whether it be the bills you pay or all the furnishings you have to get. The same goes for cars with the cost of insurance and fuel.
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With money we tend to spend proportionally as much as we make. This means our lifestyle matches our income. If you are on minimum wage you won’t be looking to buy a big mansion, have a massive TV or eat out every night. However, as anybody who has ever gone through a promotion or wage increase will know, your expenses usually increase in response. There is no point looking at small televisions in the shop anymore when you are suddenly making several thousand dollars extra ever year. If you were to lose that job or your earnings shrank though, you would struggle to adjust your lifestyle. It’s easy to adopt to a more expensive lifestyle, but it’s not so easy to take a step down. And with the economy the way it is right now, you can probably see how this is a big problem.
Why do so many people succumb to lifestyle inflation? Is it companies ramming their latest fancy gadgets into your face every advert break? Is it peer pressure and the desire not to be left behind by our wealthier neighbors? Is it banks rashly offering ridiculous loans which are equally rashly taken up by eager consumers? It’s perhaps all that and many other reasons. Over the last decade it’s really got out of hand for many people but the sad fact is our standard of living is infinately better than (probably) 99% of the world before lifestyle inflation even takes effect. After a certain level of income (basically when you can comfortably afford the basics and can pay your bills every month) the happiness increases are less so why are we so self-indulgent? The right approach is (and always has been) of course to live well within our means. Rather than buying stuff because you can, ask yourself whether you really need it? Will it bring real value to your life? I think under the current circumstances it’s necessary to remember that.
Check out my free new ebook, Clutter 101: The Definitive Guide To De-cluttering Your Life