This is a week where budgeting takes a back burner. The space will be filled with articles surrounding my experiences and other information about personal finance. Today’s topic is surrounding lifestyle creep, also known as lifestyle inflation. It’s super important to grab that snack. If you’re anything like I was before I started my path to debt freedom, wine, beer, or liquor will be your beverage of choice today or anything that will help with the anxiety.
What exactly is lifestyle inflation? I can best tell you with a story:
One day, Josie received a promotion that came with a 13% raise. When Josie’s raise kicked in, she decided that old old car that her dad had given her straight out of college had served it’s purpose but was time for a new car. She was going to have to get used to having a payment and higher insurance, but it made sense. It had all the bells and whistles that she could imagine. Josie had also been hoping to upgrade her apartment from a one-bedroom/one-bath to a two-bedroom/two-bath for guest visits so they can have their own space. Last, Josie also purchased a few new clothing items and upgraded her home office space.
Three years later, Josie got another promotion. This one came with an additional 10% raise! Josie was on a roll and decided it was time for a wardrobe that supported her new job. Josie also decided to move to an apartment that was in the city, around more singles and professionals in her age range.
I’m going to pause for dramatic effect, to provide the official definition for lifestyle inflation: When increased income leads to increased non-essential spending.
In more relatable terms is…you earn more…you spend more. It’s a vicious cycle. That can be in any category and not just the one’s highlighted in Josie’s story. Some of us upgrade the restaurants we visit and how frequently. How many and the quality of gifts we offer for birthdays and holidays.
So question is…why do we do it? Josie, she believed she deserved it and she more than likely did but, there are a few things to consider before you make the leap that could blow up your finances:
- The impact to your budget
- If the upgrade is reasonable
- If a change such as job loss, would impact your ability to make ends meet
Once you receive a financial windfall, contemplate the advantages and disadvantages before you splurge. Will you still be able to reach your financial goals and pay all of your other bills? Will you be able to continue to pay down debt? Will your budget be too tight to breath? Do you have enough saved if you lost your job?
When I started this debt journey, I downgraded everything I could. My apartment at the time was $828 base a month, along with my water bill, Hulu Live, Wi-fi, Electricity, and gas, I was paying about $1,100 and living off of the proceeds of my house sale from 2017. I decided to buy out of my lease and in early 2019, My main living expenses dropped to $465 for rent, utilities, and Wi-Fi. I had too if I were going to see progress with debt payoff. I put that goal first, but let’s look to see how Josie is doing.
Josie loved her now newish car, wardrobe, apartment, and most importantly…her new job. Some time had passed and Josie felt the pinch of how much these changes she made affected how much she had left to spend. She had a student loan payment that was $443 a month that she began struggling to pay. Christmas wasn’t as fun because she didn’t have enough for gifts. It all hurt and she was draining her savings.
The effects of lifestyle inflation really caused Josie to rethink some of her choices. Being in the city was expensive, loud, and the singles just weren’t nearly as impressive as she hoped. Her savings had dwindled by half and her lease was up, so she downgraded to a smaller apartment that was in a more suburban area. That change alone lowered her monthly payment by $700. Now, not only was she able to tackle her regular bills and that student loan debt, she was also able to replenish her savings and began to work towards paying off her car loan.
When Josie’s next raise approached, she was able to maintain her lifestyle a lot more reasonably and decided to keep things as they were. Even with rent raising every year, she could keep up with her bills and had even paid off her car. She was working on paying down her student loans and had more breathing room.
We can all take some pointers from Josie.
While this scenario is fictional, it is realistic in the sense that we want to treat ourselves when we obtain more money. You may also see it around tax time when a lot of us buy many things we normally can’t throughout the year. That is a a short term version of lifestyle inflation but it’s still something to factor in. Most importantly, we must make wise choices with our money. Consider if anything you purchase is a need or want. There is a big difference. I live in NC, a car is as much of a need as food, water, and shelter. If I still lived in Colorado, it’s likely I could get by on public transportation. If my favorite pair of shoes died today…God forbid, I could go a moment before buying a new pair because it’s a desire to replace the shoes or a want. If I lost all of my shoes…that is a necessity.
If you learn to maintain a little and you’ll obtain access to more.
Until next time!
Brushes & Budgets 
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