Comments on: Lifestyle Inflation

By: Will

Will — Mon, 31 Aug 2009 20:08:00 +0000

I’ve worked in the opposite direction with “lifestyle” deflation after tackling my finances and realizing I was living outside of my means.

Needless to say, I was kicking and screaming at first, but I got things handled and much more conscious of where my money is going.

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By: Ms Save Money

Ms Save Money — Wed, 26 Aug 2009 06:22:54 +0000

Inflation is definitely putting a whole in my pocket these days. i went to CVS (store) just to buy 3 items (bottle of Gatorade, Coke, and Head and Shoulder Shampoo) and the it came about to be $19.

By: phi

phi — Wed, 26 Aug 2009 00:35:37 +0000

Another reason I thought of for lifestyle inflation is when we try to justify our purchase through an “I deserve it attitude.” So you work hard all week, you feel like you deserve to buy this or that. While it’s true you deserve it, it’s not necessarily the same as you should buy it.

I was going to buy a new lens for my camera last week, until I realized that I shouldn’t really be buying it because there were other things I should be saving for.

By: used tires

used tires — Tue, 25 Aug 2009 17:57:35 +0000

I think the reason why we sometimes over spend when we are earning more, is because we see the money that we once never had, and sometimes we just want to get better things, as it’s only normal for us humans. But at the same time, we can tend to regret it. Although I do find it that generally even people who earn $90,000 per year, might be in the same financial situation as someone earning half of that, just simply because they have the same spending habits.

Till then,

Jean

By: MR

MR — Tue, 25 Aug 2009 15:25:04 +0000

@MikeG – thanks for the information! I’m at 21% after tax, relieving to know I am in the ballpark. I am not the frugalist of people, this I know, so a good first step. Will definitely start banking raises, as now that I’m in a good income bracket, I do not need the extra money for lifestyle. Though sometimes I think I do!

By: MikeG

MikeG — Tue, 25 Aug 2009 15:18:21 +0000

@phi, great advice!!
We all should remember that some things cost so much more than the upfront cost.

Take TV, for example, it costs about $20 per month which seems cheap. But it also costs your health, your time with people you care about, and extra money for snacks as you watch and extra money for the crap you wouldn’t have bought if it weren’t for all the ads.

By: phi

phi — Mon, 24 Aug 2009 23:30:06 +0000

The best way to avoid lifestyle inflation is to turn the TV off and stop reading magazines. You can have things now or have it all later. I’m not telling anyone how to live, but I am going to start taking my own advice.

By: Maiku

Maiku — Mon, 24 Aug 2009 22:09:53 +0000

Wow, this is a very relevant post to me as I have been trying to raise the 20% for a downpayment on a house for the past 5 years. The problem is in that time the 20% has also gotten bigger and bigger since a) House prices kept rising at ridiculous rates and b) I kept deciding that I need more house.

I think now I have settled on an absolute max which should help. In other areas, I have also noticed that my lifestyle has become a bit more lavish. I don’t tend to buy too much (since my wife complains that I have too much junk anyway) but I am tending to eat out more often these days. I am now trying to curtail this to reach my 20% goal by the end of the year.

So I guess the moral is to have goals AND write them down so that they don’t start inflating as well.

By: cannon_fodder

cannon_fodder — Mon, 24 Aug 2009 21:56:01 +0000

MR,

As MikeG stated, there are so many variables during a person’s lifetime that there is no hard and fast rule.

If I include mortgage prepayments and RESP/RRSP/TFSA contributions, then my wife and I are around 30% post tax. When I made more money, it was a lot more… now that we have a car payment for the first time in about 6 years, it is less… now that we can put $2,500 into an RESP and still get maximum CESG, it is less… when my child support payments finally come to an end, it will be much more…

If you were at all very concerned you could lose your job earlier this year and you took drastic steps to cut back expenses yet didn’t fill the pinch as you thought, then you definitely have a lot more room to save. If you felt it hard, then perhaps you are well structured in your discretionary expenses OR you need to become enlightened on the difference between ‘needs’ and ‘wants’.

Here is an analogy – years and years ago I was a member at a gym. I thought I was doing quite well in the strength training department and generally am one to push myself. One day I saw a young, strong athletic woman doing quite a bit more weight on the leg extension machine than I would normally do. Well, call it pride, ego, male chauvinism, whatever you want – I bumped up my weight so that it was even more than she was doing and never went back to my normal amount of weight.

Sometimes we think we are doing well – until someone else comes along to show us we can do much better.

By: MikeG

MikeG — Mon, 24 Aug 2009 21:30:59 +0000

@MR
The % of salary that you should save will vary, but I think 10% is the minimum I’ve seen mentioned. Not sure if that is pre or post tax. I personally go for 25% post tax, and will be rolling at least half of all raises into my savings (so the % will probably increase over time). When you get a raise dont forget to increase your giving budget too!

-MikeG

By: MR

MR — Mon, 24 Aug 2009 21:01:19 +0000

Would love to hear what % of my salary I should be saving each month. I’m sure there is a range and some are more aggressive than others, but would love to hear people’s thoughts. I have definitely fallen victim to Lifestyle inflation!

By: mfd

mfd — Mon, 24 Aug 2009 20:11:48 +0000

We don’t save a percentage but rather hard number every year but roll our pay increases into increasing our mortgage payments. Hopefully we can continue this trend.

By: Ashley

Ashley — Mon, 24 Aug 2009 19:42:36 +0000

I think people get into lifestyle inflation issues when they feel EVERYTHING in their life needs an immediate upgrade. Just because you’re making more money doesn’t mean you instantly need a brand new wardrobe, a fancy new car, and an apartment in a part of town where you’ll pay 20% more than market value. With my raises I’ve allowed myself a few things here and there, but I still operate my budget/savings as I did in my first job out of college.

By: Stephen Winters

Stephen Winters — Mon, 24 Aug 2009 16:37:49 +0000

Personally if you can bank your savings as a percentage, maintain your modest lifestyle and not jump to every “keeping up with the Jones’ fads” you’ll keep your lifestyle inflation in check. At least that’s what I keep telling myself. If you control items 1 to 3 in your list above you will be ahead of the game. As for item 4 – I do enjoy banking a small percentage so that I can squander on what my wife calls “man toys”. If I see it, like it, I buy it, no questions asked – as long as the funds are in my fun account.

By: Sampson

Sampson — Mon, 24 Aug 2009 13:58:21 +0000

Sure has crept up quite quickly in our home.

We have certainly maintained our relatively high savings rate, and we have quite a structured financial plan which we are on/ahead of target.

I think in a sense its inflation, but on the other hand, sometimes I realize that we have been learning how to spend. The purse strings have often been quite tight around here, and now we realize we are well on our targets, we are learning that even if we spend that extra 10% (e.g. new car vs. used), it is still well within our means.

By: Mark in Nepean

Mark in Nepean — Mon, 24 Aug 2009 13:08:05 +0000

Short, simple and effective post FT.

I’ve always “banked my raises” and will continue to do so. Although, I must admit, I balance this with item # 4 (have fun) since IMO you have to enjoy some of what you’ve worked so hard to obtain!

Cheers.

By: Ray

Ray — Mon, 24 Aug 2009 12:03:21 +0000

I believe the best way to avoid “lifestyle inflation” is to have priorities and have set goals…..if you don’t have those it’s very easy to spend any extra cash and then some more.

we have been soo buys with wedding planning and new apartment last year did not have a lot of time for lifestyle inflation.

By: Kirk S.

Kirk S. — Mon, 24 Aug 2009 12:03:14 +0000

Great advice (as usual). I am a big fan of the save a portion of your raise (I right now save 1/4, pay off mortgages with 1/2 and keep 1/4 for spending but hope to do a 50-50 split between investing and spending long term).