The Curse of Lifestyle Inflation: Why We Always Want More

Saving Money

By: Kong Template

Inflation? You know. When that candy bar that always costed $0.50 is suddenly $1.00? When gas used to cost $20 to fill up a tank and now costs $50. Or how about when everything on the dollar menu at a fast food restaurant is now over a dollar (looking at you, McDonald’s)? So what exactly is lifestyle inflation? To be fair, I don’t know who coined the term (I’ll gladly take credit), but it really does make sense. Lifestyle inflation basically boils down to this. Your spending increases with your income. It’s quite interesting understanding why we always want more stuff.

I know what you’re thinking. Isn’t that normal? Isn’t that the whole point of making more money? So that you can buy nicer things?

This wouldn’t be a personal finance blog if I wholeheartedly agreed with that. Mind you, It is perfectly valid to buy more expensive things as you make more money. And in fact, we’ve already talked about how going cheap isn’t necessarily the most financially sound decision. But here, we’re talking more about your overall habits, aka lifestyle. Unfortunately, lifestyle inflation is tougher to avoid than you think.

I’m Rich!!

But are you really? The truth is: you’ll go through many income changes in life. You’ll feel on top of the world at certain points. Here’s multiple times where I felt rich(er):

  1. Getting my first weekly allowance. I got paid weekly according to my whatever grade I was in. Starting in the 5th grade, I was pocketing a massive $5/week.
  2. Winning prize money from my piano competitions. I played at a young age and went onto win a few competitions throughout my life. Prizes averaged a few hundred dollars. It was a nice bonus for sure!
  3. My first job during college. I worked multiple jobs throughout college. My first paycheck was around $800, which was insane to me. Didn’t find out that my first employer didn’t deduct taxes (lesson learned when I would have to pay a few hundred dollars down the road).
  4. My first job after college. A first salaried position for me. It was a pretty big leap over my “summer” college jobs and internships.
  5. My second job. Switched jobs for more opportunity and higher pay.
  6. Getting a promotion. Another boost in income.

I’m sure many of you have gone through some of these milestones as well. At each stage, there’s definitely a temptation to increase your spending to adjust accordingly.

“Wow, I’m making a few hundred dollars more on my paycheck now. Time to upgrade my wardrobe!”

“I can afford to eat out every meal now!”

“New job means I can get a new car.”

So why do we naturally want more when we make more? It’s because the value of money – our perception of what it’s worth, changes over time.

Our Changing Perception of Money

It’s crazy, but the value of a dollar to you will change drastically as you age. When I was really young, having a dollar was a HUGE deal. Heck, I could buy almost any candy bar that I wanted. That was great for a time.

But then I realized I wanted toys. Well, those costed a bit more than a dollar. A dollar didn’t seem that valuable anymore. Ten dollars could get me what I needed.

Then, I wanted video games. Ten dollars could get you all the crappy ones, but I wanted the good ones! Ten dollar bills lost a bit of luster after that.

But wait, then everyone suddenly started getting all sorts of cool electronics. Things started costing tens of dollars. Then hundreds of dollars.

Now it’s cars. Then houses. Newer cars. Newer houses. Bigger, better…

That dollar that may have been worth so much early on is nothing when you’re eyeing your next dream home. We can get desensitized because of the bigger numbers that we deal with on a day-to-day basis as we get older.

I know people who are in massive debt from school who have lost sight of the value of money already.

“What’s another hundred dollars? I’m already thousands in debt.”

This is why our changing perception of money can be dangerous. It will actively contribute to lifestyle inflation and why we want more things.

I Want More! I Need More! (The Diderot Effect)

Have you heard of something called the Diderot Effect? It’s quite interesting. Basically, this philosopher with this cool last name proposed that having stuff will cause you to need more stuff (real deep there, Kong). Check it out:

Diderot talks about someone who receives a beautiful gown as a gift. Cool, nothing wrong with that. But then they realize that nothing in their home complements the gown, because of how nice the gown is. This causes them to start replacing a bunch of other things in order to match the quality of the gown.

It seems silly. And maybe a lot of us think we would never do that. But it can actually sneak up on you more often than you realize.

  1. You receive a brand new TV as a gift. It’s beautiful. It’s perfect. Oh wait, but the old TV stand you had doesn’t really suit this beautiful new panel.
  2. You go out and purchase a new TV stand. Perfect. Oh no. The old speakers don’t do this new TV justice. You need surround sound.
  3. You go out and buy new speakers. Then you set it up. Everything’s great! You quickly sit down in your…rugged old couch. How are you going to enjoy this new set up if you’re not even comfortable sitting down?
  4. You go out and buy a new couch. It’s big. It’s beautiful. But now the living room is too small.
  5. Time to look for a new house. (Ok, maybe this part is extreme, but you get the idea).

Even if the above example doesn’t relate to you, there are hundreds of other ways that purchases will seemingly necessitate other purchases. It’s really not too difficult to get sucked into this vicious cycle.

Keeping Up With the Joneses

For a lot of people, there’s a pressure to keep up with others.  How come they get to buy a new car? Why do they get to go on cruises every month? If your neighbor is able to afford something, then you should be able to, right?

First of all, this type of comparison is almost always unhealthy. Some argue that this can be a source of motivation. But usually, it just leads to unnecessary and unrealistic envy. If you struggle with this mentality, there are several things to keep in mind:

  1. You don’t know the whole story. Anyone can look rich. Seriously. But guess what reality says? Millions are in debt. There are so many people out there living paycheck to paycheck. But to the outside world, they look like movie stars (who oddly enough, may also be living in debt). If you haven’t read The Millionaire Next Door, I strongly recommend it.
  2. Don’t worry about them. Generic? Yes. Applicable? Yes. Easy? No. It can be really difficult focusing on just your own matters when it seems like your neighbors and friends are all in financial heaven. But don’t worry. Who knows where they’ll be in 5 years? 10 years? But even more so, how does it really affect you? Most of time, it really won’t. So it’s important to focus on what you can control and do to grow your own finances.
  3. Stay focused on your personal finance. There’s a reason it’s called “personal” finance. Not “my next door neighbor’s finance + my finance.” By always comparing and worrying, you’re really just slowing yourself down.

Don’t get tempted into lifestyle inflation just because of your neighbors, friends, or family. Their life should not dictate the way you live yours financially.

Fighting Inflation

You might be thinking, “Great. Now I know all of this. But it sounds impossible to avoid lifestyle inflation.” Well, you might be right. Quite honestly, it can be difficult. There are so many factors that play into lifestyle inflation. The people that you hang out with. The income increases/decreases that you’ll experience in your life. How disciplined you are.

Luckily, there are ways to counter lifestyle inflation. And what works for you will be different from what works for someone else. Check out some of these tips:

  1. Lifestyle inflation is a lifestyle. You might know the saying. Thoughts become actions. Actions become behaviors. Behaviors become habits. Habits become a lifestyle. People splurge on things all the time. You can want things you don’t need. We’re human. It’s natural. But don’t go out and buy more and more expensive things every time you earn a little bit more. Just by repetition alone, you’ll automatically feel inclined to want more whenever you make more.
  2. Have a budget/savings plan prepared…and then stick with it. This might just be your greatest tool against lifestyle inflation. Having a plan is much better than having no plan at all. And having a plan in anticipation of any income fluctuations is even better. You’re much less likely to fall into the temptation to spend more if you already know what you’re doing with the additional income. If you’re budgeting properly, lifestyle inflation isn’t something you need to fear.
  3. Automate your savings. You can automatically allocate a certain percentage to savings. Therefore, even if you increase in income, you’ll automatically save more without even noticing.
  4. Know your spending guidelines. It’s much easier to control your spending when you know how much you should be spending.
  5. Don’t worry if you fail. As I’ve mentioned before, almost everyone will fall into financial mistakes. The important thing is to get back on track. If you give into this type of lifestyle, it’s very easy to get into lots of debt in the long run.

What are your thoughts?

As always, I’d love to know! So please comment below if you have anything you’d like to share. Do you agree that lifestyle inflation is a real issue? Have you experienced it yourself? Do you still struggle with it? Maybe you think that this is just a part of life?

I look forward to hearing from you all!

Republished with the permission of KongTemplate.com.

Steve handles the operational side of Rockstar by keeping the systems running smoothly, social media accounts active and curation buttery smooth. He also answers to the name “Do-It-All Boy”.

Steve is also the founder of ThinkSaveRetire.com – a site where he shares ideas and techniques on how to retire from your 9-5 job and start to enjoy the virtues that life has to offer outside of full-time work. Life is about more than fluorescent lights and gray cubicles!

Last modified: August 25, 2018

2 Responses to :
The Curse of Lifestyle Inflation: Why We Always Want More

  1. Xrayvsn says:

    Really one of the better explanations of lifestyle inflation I came across.

    As a physician this is one of the more common things that derail our path to financial wealth. I fell into this trap many a time (so much so that I was able to create a multi part series to launch my blog with). I justified buying things I clearly couldn’t afford because I deserved it after years of sacrifice to become a doctor. I even bought a brand new Mercedes before I got my first attending paycheck because I couldn’t wait (I didn’t really buy it as the bank technically did).

    Doctors also seem to have societal pressure to look the part (doctor house and car and some cases trophy spouse) because if they don’t they must not be good.
    .
    Pmsnj of my colleagues live paycheck to paycheck because of this. Even though each paycheck is huge it rapidly vanishes with the amount of expenses they have

  2. Great post! Learned something new – the Diderot Effect. I completely agree with the sentiment here.

    It becomes difficult walking a line though. Now I have a wife and what was a fine neighborhood for a young man with nothing but time to travel if needed isn’t the right fit for a young woman (the neighbourhood wasn’t exactly safe), or two young professionals (our jobs are almost always on, and travelling far now would require energy we don’t have). Maybe there’s a line between lifestyle level-setting or adjusting vs. inflation.

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