Money Management

Lifestyle Inflation is Keeping You Broke

By  Ben Le Fort

Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.

Lifestyle inflation is a simple concept. As your income rises, so does your standard of living. But to build wealth, you need to save more.

Even though you’re making more money, do you feel like you’re stuck on a treadmill with no increased savings to show for it? Lifestyle inflation is what keeps many in the middle class from achieving the savings they need to afford their ideal retirement.

If you worked 55 hours last week and still can’t pay off that credit card, the odds are that lifestyle inflation has something to do with that.

Building wealth isn’t about how much money you make, it’s about how much money you save. Your savings rate, how much of your take-home pay you save, is the most important number when it comes to your personal finances.

That’s why I am such a fan of the Financial Independence, Retire Early (FIRE) movement. The only variable you need to keep track of is your savings. If you know your savings rate, you know how many years until you can retire.

The logic of the savings rate seems very fair to me. If you have a low income but are willing to make sacrifices, you can achieve a high savings rate. If you have a high income but fall victim to lifestyle inflation, you will have a low or even negative savings rate.

How to Avoid Lifestyle Inflation

Your boss calls you into his office to inform you that you have received a 5% pay raise. Congratulations – take a minute to enjoy the moment and the recognition of all your hard work over the past year. 

Now for a critically important question, what are you going to do with that extra 5%? 

My advice – act like it doesn’t exist.

Set up an automatic withdrawal to move that extra 5% from your checking account into an investment account every payday.

Then you simply live your life as you did before the raise. You were able to survive before you got that 5% pay raise, and you’ll be able to survive if you dedicate all that new money into savings.

Where Lifestyle Inflation Strikes

There are many areas of life where lifestyle inflation can creep up on us. It’s important to be aware of where costs mount up so you can check yourself and make sure you are not spending unnecessarily. 

“The most common lifestyle increase I see is usually in eating out,” Nathan Mueller, MBA, Financial Advisor and Founder of BlackBird Finance. “This is easy to justify for most folks because they need to eat, but rather than plan ahead, they end up going with convenience. Eating out has many benefits, no dishes, no cooking, meals you couldn’t cook on your own, and a fun atmosphere. It is very challenging for anyone to stay strong with a strict budget after they start making more money.”

For some people, enlisting the help of a financial advisor may be necessary.

“It can be hard for some clients to resist lifestyle inflation,” said David Edmisten, CFP and Founder of Next Phase Financial Planning. “In a lot of cases, the clients aren’t really aware of how their spending choices today could harm them in the future.”

“They may be trying to keep pace with their peers who seem to be enjoying ‘the good life.’ Some clients believe they deserve to enjoy a robust lifestyle because they worked so long and hard to be able to retire.”

“I ask them if there are changes they would consider now to provide a more secure future,” he added. “I’ll help them review their spending categories and offer ideas where they may be able to consolidate items or reduce spending, and we’ll talk through how they can make that happen.”

Supercharge Your Savings Rate

Let’s say your take-home pay was $5,000 per month. Let’s also assume that right now, you are saving 10% or $500 per month for retirement. That would put you on a 51-year path to retirement.

If you get a 5% raise each year, you have two options: give into lifestyle inflation, or save that extra money.

If you spend your raise on eating out and new TVs, you will remain on a 51-year path to Financial Independence. But if you reinvest it consistently for five years, you will have cut your retirement path down to 28 years. 

Love the Life You’re Living Right Now

Without making any cuts to your current spending, you can increase your savings, build wealth and put yourself on the path to financial independence in just a few years.

Building wealth is not complicated. Anyone can do it by following two simple steps. First, make more money. Then, save all the extra money you make.

Some Ways to Earn Extra Income: 

  • Consider a side hustle. Driving for Uber or Lyft is an easy way to make extra money in your free time.
  • Pick up some overtime hours. If your work offers you the ability to work overtime hours, take advantage. You might even be eligible for time and a half or double-time if you work a certain number of hours in a week.
  • Start a side business. A side business is like a side hustle with two major differences. A side business is something you are passionate about and has no income guarantee or income cap. You could make $0 on a side business, or you could make a ton of money. The market will decide.
  • Get creative. Do you have too many “things” around the house? Consider a yard sale. Even a few extra bucks can get you motivated to find the next idea to make some extra money.
  • Get a raise. As mentioned above, getting a raise is among the simplest ways to increase your earning power. The best kind of raise is one that doesn’t require you to take on extra tasks, so you get paid more to do the same work. Try to negotiate a raise with your employer, and don’t be shy to make your demands clear! 

Whichever way you decide to make more money, it’s critical that you have a system in place to ensure that money goes towards savings. You might have the best intentions to save that money before you make it. Once that money is in your pocket, it’s easy to tell ourselves that we deserve to treat ourselves.

That is where automating your savings is so powerful. It removes you from the equation. When the option to spend that new money is removed, you’ll likely find that you don’t even miss it.

There is a reason the government has your employer automatically deduct your taxes from your paycheck. If someone hands you a hundred dollars and then they come by your house the next day and take $30 out of your pocket, odds are you’ll be focusing on the $30 you lost rather than the $70 you gained.

If your employer didn’t deduct your taxes from our paychecks and we had to write a check to the government ourselves every month, odds are there would be a revolution. The government understands if you never see the taxes coming out of your check, you won’t miss it.

The same rule applies for any new money you make. If you make it a habit of automatically saving that money, you won’t miss it. It will feel like it was never there, and one day you’ll look at your investment account and realize you’re rich!

Find Your Next Financial Advisor on Wealthtender

📍 Click on a pin in the map view below for a preview of financial advisors who can help you avoid the temptation of lifestyle inflation so you can reach your money goals with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options.

Ron Zunker Pax Financial Group Fee Based Fiduciary Advisor
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San Antonio, Texas
Mark V Powell Edward Jones Financial Advisor
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Laura Simpson, CFP® PAX Financial Group Fee Based Fiduciary Advisor
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Guy Davis, CFA GCI Investors We invest, we don’t speculate.
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Michael Jensen, CFP® Falcon Wealth Planning Planning Made Simple.
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Adell, Harriman & Carpenter, Inc. Your financial home for every season of life.
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Charles F. Hall Jr. Clear Rock Advisors Managing Wealth for Generations
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Austin, Texas
Ty Sanders Clear Rock Advisors Managing Wealth for Generations
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Corey Long, CFP® Clear Rock Advisors Managing Wealth for Generations
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Corey Noyes, AAMS Balanced Capital Align Your Portfolio With The Kind Of World You Want To Create
Heber City, Utah
David T. DeWitt, CFP®, CSRIC DeWitt Capital Management Financial Planning for the Next Generation
Wayne, Pennsylvania
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Bob Gavlak, CFP® WealthSource Sophisticated Expertise. Approachable Advice.
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The Goff Financial Group Fee-Only | Fully Independent | Fiduciary
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Tips to Kick Lifestyle Creep to the Curb

Six Ways to Avoid Lifestyle Inflation by Karen Banes

Karen Banes is a freelance writer specializing in personal finance who regularly writes for Wealthtender and Medium.com. (Visit Karen’s Website). Just below, Karen shares six ways to avoid lifestyle inflation.

It’s surprisingly easy to live life broke on a relatively high income. One of the reasons some high earners have no money is a simple concept known as lifestyle inflation. Put simply, the more they earn, the more they spend, so their financial situation never really changes, although it certainly appears to. Their houses get bigger, their cars get flashier, and their belongings get both more numerous and more impressive. Their bottom line, however, stays the same.

If you don’t understand and control lifestyle inflation, your wealth won’t really grow. In fact, your financial situation won’t really change at all, although your lifestyle will. If you have no money in your entry-level job, you’ll have no money two or three promotions later. If you have crippling debt in that entry-level job, you’ll most likely still have that two or three promotions later, too.

We all want to live a nicer life as we earn more money. There’s nothing wrong with that, but controlling our expenditures as our salary increases is what allows us to pay off debt and start building wealth. There are a few easy ways to avoid lifestyle inflation. Use one, two, a combination, or several of the approaches below to ensure you manage to actually build a little wealth as your income increases.

1. When You Get a Pay Raise, Pretend You Didn’t

Set up an automated transfer straight away to put the extra money into a savings account. Or to pay off outstanding debts if that makes more sense. If you were managing fine on your previous salary, you literally don’t need that pay rise, and it can probably best be used to secure your long-term future. If you’re using it to pay off debt, work out which method will work best for you.

2. When You Pay Off a Loan, Pretend You Didn’t

Same principle as above. Just paid off a loan where payments were, say, $250 a month? Switch to putting that $250 directly into savings too, or transfer it to paying down your next most important debt. Otherwise, you’ll have that money available and start to just spend it on lifestyle choices that you don’t need or even necessarily want.

3. When You Kick a Habit, Pretend You Didn’t

Finally quit smoking? Or drinking? Or stopping off for that $5 designer coffee every morning? You know where this is going. Take that money and put it straight into savings or debt repayment. If you don’t, you may well just transfer the money saved by kicking a habit into funding a lot of unnecessary impulse spending just because you have the money available.

4. Cultivate a Wide Variety of Friends

If all your friends are the same age and income as you, your lifestyle will creep up alongside theirs. Try making friends through hobbies, sports, and volunteering as well. You’ll know people from all walks of life, at different ages and stages, with different incomes and different life goals.

This can stop you from thinking you ‘have to’ have certain things or live life a certain way just because everyone else you know is doing it that way. Not only will this prevent lifestyle inflation, but it will help you develop a sense of independence so when you do spend money, it will be on what’s really important to you.

5. Embrace Minimalism

As we touched on above, keeping up with your contemporaries is a reason for lifestyle inflation, so rather than get dragged into that, embrace something positive (and fashionable) that avoids consumerism. Keep a minimal home, a minimal wardrobe, and a carefully crafted but minimal lifestyle. That’s a lifestyle where you do less, but what you do is meaningful, interesting, educational, and fun. Embracing minimalism is just as stylish as owning a ton of designer clothes, just in a different way. 

6. Develop Self-Confidence

A lot of lifestyle purchases actually stem from a sense of insecurity and a need to ‘fit in’. Yet so many of the coolest, most interesting characters you’ll meet throughout life will be those who are doing life a little differently.

Being frugal takes confidence. Being an individual is harder than following the crowd but also more rewarding. Never slip into the age-old trap of spending money you don’t have, on things you don’t want, to impress people you don’t like. Learn to define yourself by what you do, not by what you have, and draw your self-confidence from that.

Ben Le Fort

About the Author

Ben Le Fort

Hi, my name is Ben. I am the founder of Making of a Millionaire. I have been obsessed with personal finance and learning how to manage money, ever since my parents declared bankruptcy and lost the family home to foreclosure in 2010.

I spent the next 10 years continuing my journey of educating myself about money. This education was both formal and informal.  

On formal education, I earned a Bachelor’s and a Master’s degree in Finance & Economics. 

On the informal side, I consumed every book, video, blog post, and podcast that discussed personal finance.

Education was nice, but it wasn’t until I began implementing what I learned that I began feeling more hopeful about the future. 

Before long, I had paid off my first loan. Then the next. By 2015 I was debt-free. By 2016 my wife and I bought our first house. Then we started investing. We bought another house and began building real wealth.  

As our wealth grew, the memories of that family bankruptcy seemed further and further in the rear-view mirror. My stress and anxiety began to melt away and I was able to sleep at night without my mind racing and problem-solving.

By 2018 I knew it was time to start sharing what I learned about managing money and Making of a Millionaire was born.

I hope you find the articles, videos, and courses created by Making of a Millionaire to be of value to you. Please feel free to reach out to me directly if you ever have feedback or questions.

You can read all of my articles on my personal site, or on Medium. If you’re interested in video-based personal finance tutorials and education, you can Subscribe to my YouTube channel or check out my in-depth personal finance course.


Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.