Examining Your Spending Habits: How to Avoid Lifestyle Inflation

Ryan Guina is an entrepreneur and writer. He has worked for Fortune 500 companies and served six years in the USAF. He writes about money management and small business topics at Cash Money Life and military money topics at The Military Wallet. You can follow his twitter feed.

I’ve never met anyone who said he wants to live paycheck to paycheck. Everyone I know wants to be ahead of the financial curve and not only earn a decent amount of money, but have something left over at the end of the day. Something they can use for their savings, retirement investments, family vacations, etc. But even though many people find they are earning more than they used to earn, their money isn’t really going any further than it used to.

Why is that? Is it because of inflation and higher prices? Maybe. But it could also be due to lifestyle inflation, or trying to “keep up with the Joneses.”

What is lifestyle inflation, and how do you recognize it?

Lifestyle inflation is simply allowing your expenses to grow as your income grows. As you earn more money, you tend to want to buy nicer things because you can afford them. And there is nothing wrong with that. Often, nicer things are higher quality, last longer and have a better long term value. But sometimes, buying more expensive things is just spending more money.

The problem with lifestyle inflation is that most of the time you don’t notice it has crept into your life. Lifestyle inflation doesn’t necessarily mean buying a Lexus instead of a Toyota, it could be as simple as buying a lot of more expensive little things that add up just as quickly. Marketers and stores do their best to convince you to purchase more expensive items without you noticing. Take for example, shopping at the grocery store.

How the “small” things enter your daily life

You can go grocery shopping and on any random day you will see a sale on the premium items you normally wouldn’t buy. One example is those artisan cheeses that cost $16 lb, which is about eight times more expensive than the store brand. Most people simply can’t afford that on a regular basis.

So the stores discount the expensive item and don’t discount the store brand. The result is a small block of premium cheese that isn’t too much more expensive than a large block of the store brand cheese, at least per package; the cost per pound is still much higher. But you want to find out if that cheese is really that much better than the store brand, so you buy it. And you LOVE it.

The sale ends and the next time you go to the store you see the artisan cheese is no longer on sale. You tell yourself, well, it’s so good, I’ll treat myself just this once. And just like that, you’re hooked. Buying that artisan cheese set off a trigger in your mind that it is OK to spend a lot of money on a small block of cheese.

How do you beat lifestyle inflation?

Buying a single block of cheese isn’t a bad thing, and it’s not even bad to decide to buy more expensive items on a regular basis. But it can be bad if you don’t make a conscious decision to make these purchases, or if they extend to dozens of items. The key to beating lifestyle inflation is recognizing lifestyle inflation has entered your life.

Do you find yourself buying more expensive items on a regular basis? Are you taking more expensive trips, or eating out more often? Do you go shopping for fun? Has the phrase, “I can afford it” entered your vocabulary on a regular basis? If so, you may need to examine your spending patterns.

It is easy spend money when you don’t have a plan. Track your spending to better understand how your expenses add up and whether or not your spending patterns match your long term goals. If they are, then lifestyle inflation probably isn’t an issue for you. But if you find that your spending is getting out of control and you aren’t on the right path to meet your financial goals, then take a step back and look for areas where you can cut back on the expenses. It may not be anything huge, but rather a few small changes you can make on a regular basis.

Finally, I have one more tip to defeat lifestyle inflation – focus on your long term financial goals. It is easy to save money when you have defined savings goals, and even easier when you make those savings automatic. Consider opening a savings account or opening an IRA, then making automatic contributions. That way you guarantee your savings will occur before you even think about going shopping. The same goes for every other item in your budget such as your monthly bills. By automating it you allocate those funds before you ever have a chance to spend them, making it easier to avoid lifestyle inflation.