“Go on, click Buy,” the devil on your shoulder says when you stumble upon a fabulous pair of shoes at an online store. “No, make an extra credit card payment,” the angel on your other shoulder says. “When you’ve paid off all your debt, then you can treat yourself to those awesome espadrilles.”
What do you do when faced with this kind of decision? How do you handle Lifestyle Inflation? Do you ignore that angel on your shoulder and Buy those shoes, deciding you deserve a treat after an exhausting week at work? Or do you listen to that angel, reminding yourself of your goal to spend a week at an exotic, all-inclusive resort — a trip you dream of paying for, soon, without using a credit card. As discussed in my previous post, “Living Like a Player When You’re Practically a Pauper,” lifestyle inflation occurs when your expenses increase as your income increases. It’s the reason why you’re just as broke now as you were when you were a poor, struggling student — even though you now bring home a paycheque. Many people don’t realize that they suffer from lifestyle inflation and in fact subconsciously justify it. They tell themselves they’re supposed to be spending this money now that they’re making it (or else why bother working at all?), and that they deserve to have a little fun after working so hard. Besides, their incomes are expected to increase substantially over the next 15 years, so why worry now?
Well, there are many reasons to worry now. A better way to look at it, though, is to understand that there are many excellent reasons to put yourself in a financially responsible position as soon as possible, in order to anticipate the expected and the unexpected. You can’t be a 25-year-old partier forever: eventually, you may want to get married and host 150 of your closest friends and family members at the reception; or you may want to travel and not stay in grimy youth hostels; or buy your own place; or have a kid. There are numerous reasons to be debt-free and with a healthy amount of savings and investments. In order to obtain that, you need to be frugal and avoid lifestyle inflation. Here are 3 tips to help you resist that temptation to spend.
Be aware of the financial situation(s) in your social circle.
This works both ways. If you roll with the jet-set crowd and find yourself spending a ton of coin every time you go out, perhaps you could politely decline some of those outings. At first, you might suffer a bit from fear of missing out — but be strong and you can get over that with relative ease. On the other hand, if you naturally have a generous spirit and don’t keep money close to you, scale back on taking care of the bill.
After graduating, changing careers, or getting a big promotion, don’t immediately upgrade your life.
Is there any way to delay moving out, live with your parents a little longer with the understanding you’ll get your own place once student loans are paid off? Do you really need to move to a bigger space/taller condo building/hipper neighbourhood? For every urge to upgrade, there is an equal reason to keep things status quo — until your life is definitely in balance. Always hold off just a little longer; let your new budgetary surplus crush that debt first.
Already have an inflated lifestyle? Downgrade carefully.
If you are already experiencing lifestyle inflation, determine if you think you could handle a quick and drastic change to your life. Going to the extreme of cutting out (almost) everything that was once a source of fun and entertainment to you, cold turkey, can be tough. Some people can do it, but others are better off making minor adjustments, such as dining in more often, cutting cable, etc., over several months.
Remember: addressing lifestyle inflation requires reflection and action — and, in the beginning, sacrifice. But, trust me, your bank account and your future self will thank you!
Written by M. Alice Allen