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. It’s 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. It’s 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 Don’t Have a Budget
If you’re 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 don’t 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 don’t 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 Don’t Save Much
When you spend almost every dollar you bring in, there’s almost nothing left over for savings. That’s dangerous.
Your savings can safeguard you against the future. You don’t 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 won’t have warning of when it will happen or how much it will cost.
If you’re not regularly saving now, you won’t be prepared to handle unexpected expenses that may arise, and you definitely won’t 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 you’ve 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. You’re 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. You’re Never Really Happy
When your main focus is on getting more, more, more, it’s hard to ever really feel content with what you already have. You trade in your family sedan for a sporty luxury car, and you’re 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 you’ve gotten “there.” There’s always further you could go.
6. You May Live Like You’re Rich, But You Feel Like You’re Poor
You’ve 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 you’re on ground just as shaky as those in lower-income brackets. You have little savings to fall back on, you’re 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. You’ve traded stability and security for stuff and status.
7. You’re in a Ton of Debt
When you’re always upgrading your lifestyle, even your income increases can’t keep up with your wants and expectations. There’s a reason some celebrities and sports idols go bankrupt, and it’s because they’re trying to live above their means — even though their means are more than sufficient by most people’s standards.
Every dollar you take out in debt is a dollar you’ll 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 you’re paying on your debts?
Paula Pant ditched her 9-to-5 job in 2008. She’s 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.