7 Ways Lifestyle Inflation Is Harming Your Finances

by Shelton on February 19th, 2015

filed under Finances


If you believe money is meant to be spent, not hoarded, and most of your financial decisions are based on the motto you only live once, you may be suffering from lifestyle inflation.

Lifestyle inflation is getting a holiday bonus and rushing out to the mall to buy a new wardrobe. Its getting a nice raise and, rather than increasing your retirement contributions or putting money towards your kids college fund, buying a bigger house in a nicer ZIP code — not because you need it, but just because you can. Its taking any extra money you receive and using it to instantly gratify your way towards a bigger, better, more expensive standard of living.

Lifestyle inflation is rampant in our consumerist, keeping-up-with-the-Joneses culture, and it puts many people in precarious financial situations even if they make a decent amount of money. Here are seven big ways lifestyle inflation can seriously hurt your financial situation.

1. You Dont Have a Budget

If youre more focused on upgrading your lifestyle than managing your money, any thoughts of a budget go out the window. You may have a vague idea how much is coming in and going out each month, but you dont pay much attention to it.

Financial management 101 involves creating — and sticking to — a budget. We know, we know: budget is a bad word. It immediately makes you fall asleep.

But consider this: budgets dont have to be complicated: it can be an easy two-category budget or detailed into dozens of line items. Pick whichever style suits you best. Any budget at all is better than wondering where your money has gone.

2. You Dont Save Much

When you spend almost every dollar you bring in, theres almost nothing left over for savings. Thats dangerous.

Your savings can safeguard you against the future. You dont know what might go wrong with your home, your car, your health — but you do know something is likely to go wrong at some point, and you likely wont have warning of when it will happen or how much it will cost.

If youre not regularly saving now, you wont be prepared to handle unexpected expenses that may arise, and you definitely wont be prepared for your retirement.

3. You Feel Like You Have to Work All the Time

The more your standard of living increases, the more hours you have to spend working to finance that standard of living. All those great things youve purchased — the vacation home, the motorcycle, the theater-grade sound system — are things you rarely get to enjoy because you spend all your time at the office. You trade your time for money.

And what do you do when you finally have an hour or two for yourself? You treat yourself like royalty, because you feel you deserve it — which only makes the cycle continue.

4. Youre Under Constant Stress

Worrying over your growing credit card balances. Stressing over keeping up appearances. Straining your personal relationships. The endless hamster wheel of lifestyle inflation can put you under serious stress, which can lead to even more splurges as you try to make yourself forget or feel better momentarily. Again, the cycle keeps repeating.

5. Youre Never Really Happy

When your main focus is on getting more, more, more, its hard to ever really feel content with what you already have. You trade in your family sedan for a sporty luxury car, and youre happy with it for a little while — but then you want a new car, a faster car, one with the latest features.

The irony of chasing a better life is that you never really feel youve gotten there. Theres always further you could go.

6. You May Live Like Youre Rich, But You Feel Like Youre Poor

Youve heard of being house-poor — owning a big house that looks lovely but that maxes out your budget so much you can barely afford anything else.

Well, lifestyle inflation can leave you status-poor or possessions-poor. On the outside, your life looks lavish and rich, but when you sit down and really look at your finances, you realize youre on ground just as shaky as those in lower-income brackets. You have little savings to fall back on, youre not prepared for retirement, you wonder how you can pay all your bills, and if a sudden emergency befalls you-like serious illness or a job loss-it could all go under in a heartbeat.

You never really feel like you get ahead, no matter how many promotions, raises or bonuses you get. Youve traded stability and security for stuff and status.

7. Youre in a Ton of Debt

When youre always upgrading your lifestyle, even your income increases cant keep up with your wants and expectations. Theres a reason some celebrities and sports idols go bankrupt, and its because theyre trying to live above their means — even though their means are more than sufficient by most peoples standards.

Every dollar you take out in debt is a dollar youll be paying several times over for years to come. Why not make time work in your favor — through investment earnings – rather than against you, through the interest youre paying on your debts?

Paula Pant ditched her 9-to-5 job in 2008. Shes traveled to 32 countries, runs a popular finance blog and is a successful real estate investor. Her blog, Afford Anything, is the groundswell of a rebellion against stodgy, uninspired financial advice. Afford Anything shows you how to crush limits, create wealth and maximize life.