This is a guest post from Natalie. Enjoy her article then read my thoughts below hers.
There are a million and one ways to spend your money, and there is never enough money to spend on everything you want. It seems like that to me anyways. I would love a newer car or a faster computer with all the bells and whistles. It would be nice but all that would involve a whole lot of cash that I don’t have. What if I did have all the money I could ever want? Would I succumb to the all too dreaded lifestyle inflation?
The personal finance world likes to talk about lifestyle inflation and what can happen if you let it get the best of you. For those who may not be familiar with the term, lifestyle inflation refers to how your spending increases as your income increases. The reason it can be so dangerous is because many people are still broke and in debt despite making a great income. This is a result of thinking that they have a free pass to spend more because they make more. This may be tempting, but it can really lead to financial disaster later down the line.
I am fortunate to have had my income increase in the past year. This has been due to my increased working hours and the success of my blog. I can’t tell you how many times I have been tempted to buy something here and there. It is all neatly rationalized in my head that I am making more money, so I can afford it. I can totally afford that new iPhone or that cool new stereo for my car, right? The truth is if you start thinking like that then it is only a matter of time before you end up broke. I would include myself as well in this thought process.
Having more money at the end of the day can be a real blessing. If you avoid lifestyle inflation you can save and invest that money, which will allow more freedom in everyday life. Remember that saving and putting funds away for the rainy day is absolutely vital especially in today’s economic climate. If you really want to spend, then pick something small that will help you feel better about all your hard work. The point is to treat yourself without breaking the bank.
Lifestyle inflation can be a tricky enemy, but it can be defeated. Finding the happy medium where you don’t end up breaking the bank is important. No one wants to be miserable while they are working hard so it is vital that you take a break as well. It is such a great thing to have your income increase, but make sure you take the time out to plan for that increase as well. This will save you so much trouble down the line so that you can really enjoy your money over the long haul.
I definitely think that lifestyle inflation is a difficult topic and one that needs addressed. I have two main points on the subject that I want to share.
If we think of lifestyle inflation in broad terms, over a lifetime, I think that a little bit of lifestyle inflation is normal and almost mandatory for many people. As you age, you may get married and buy a house, then have children, then need a bigger house, more food, possibly another car or an education fund. All of these things cost a significant amount of money, but are perfectly healthy expenses. Of course, they can still be managed in the most efficient way possible, which results in fewer required dollars, but the fact remains that they will still be expenses. As you age, you’ll also likely make more money. I think this should be considered a special case of lifestyle inflation.
That being said, I know that the scenario I described above is not what most people would call “lifestyle inflation.” The generic term which is often used to describe an increase in income followed by an increase in consumerism where people feel entitled to more stuff. Newer stuff. Fancier stuff. All sorts of stuff that will cost a significant amount of money. They also believe this stuff will bring happiness.
Which brings us to the point of this blog – to explain to people that stuff won’t make them happy. It will often make them miserable and broke, stuck working a job they hate until 65. In many cases, there is an inverse relationship between all that stuff and happiness.
This is a guest post by Natalie over at Everything Finance. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, insurance, shopping, blogging, and making money online. ESUYJQWNXTHB