How To Curb Your Lifestyle Inflation Wisely

by Connie Mei · 7 comments

Congratulations! You’ve just landed yourself a big promotion a work, got a substantial return on an investment, or maybe even won the lottery. Whatever it may be, an increase in income always warrants celebration. Many people get too excited and increase their spending habits too much in response though. As a result, they only find themselves back where they started or maybe even worse.

Lifestyle inflation is hard to curb with any increase in income. The temptation to spend is real and definitely hard to avoid, no matter how determined you might be. After all, you’ve worked so hard for it, and you should be able to enjoy it. However, it’s important to be mindful of what you do with your extra income at the same time. While it may be hard, making wiser decisions now will set you up for a better financial future in the long run. If you’ve recently found yourself in a position with more income, here are some tips to help you curb lifestyle inflation wisely:

Understand Your Goals

It’s easy to spend money but saving it is much harder. Before you go out and make a big purchase with your new found income, take a moment and understand your short-term and long-term goals. Where do you want to be in 5 to 10 years? What do you need to change now to get there later? Re-evaluating your goals will help you plan better for your future and also remind you of the challenges you might face and the decisions you need to make now to get there later. While a raise today seems significant, it might only be a dent in the bucket in the long term.

Re-Examine Your Budget

You should always re-examine your budget on a regular basis but it is especially important when you get a raise. First, ask yourself this – would spending more in any categories make you significantly happier? Would keeping your budget as is negatively effect your standard of living at all? If the answer is no to either, consider keeping your budget the same. While you might want to spend a little extra here and there, keeping your spending habits the same will save you more.

Transfer to Your Savings

As the saying goes, out of sight, out of mind. You should consider automatically transferring excess fund directly to your savings account. You can set this up to occur monthly or biweekly so that you won’t forget. This way, you’ll watch your savings account grow nicely over time. However, it’s also a good idea to start thinking about how you can invest these savings as it grows. Investing the money wisely will help you get more return over time.

Prioritize Your Debt

How to pay off debt should be one of the first things you think about if you owe. Letting debt sit over time of course builds interest. If you have extra funds to put towards paying your debt down, you should definitely consider it. Once it’s all paid off, you’ll feel a burden lifted off your shoulders. You’ll then be able to really enjoy a lifestyle inflation if you choose to.

Splurge a Little

Lastly, it’s ok to splurge a little. Often times when people talk about lifestyle inflation, there’s a definite negative connotation attached to it. Yes, many people take it to the extreme and start spending money they don’t really even have. But with smart, strategic decisions, you can still enjoy a small boost to your lifestyle while saving for your future. So go ahead, invest a little bit of the sum on yourself. You should be able to enjoy it. Just don’t make it a common occurrence.

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{ read the comments below or add one }

  • Nick says:

    You’ll get stung by inflation if you keep all your savings in traditional accounts, which are giving nothing anymore. It’s wise to invest in new technologies, such as cryptocurrencies, to make some money as it booms over the next few years.

  • Albert says:

    Love the advice to splurge a little. I think for those of us who ascribe to living as frugally as possible – we can tend to go overboard.

    Budgeting a little bit of ‘throw away’ money is important for motivation and mentality! 🙂

    • David @ says:

      Splurging is a learned skill for those of us who are naturally frugal though. I’m getting better at it, but I’m flying out to Canada tomorrow and in order to save money, our family is taking the 7:40am flight instead of a much later flight. We can afford the extra cost but we still chose to wake up at 4am instead of taking our time and waking up during our normal hours.

      I will get there one day but I have to remind myself …baby steps…

  • Mrs. Adventure Rich says:

    My employer offers an online system for setting up direct deposit. I currently have it set up so only a small portion of my paycheck (after 401k, HSA, tax, etc) goes into my checking. The rest goes directly into various savings accounts so I never “see it”. It has been a great way to boost savings and avoid lifestyle inflation!

    • David @ says:

      Automatic savings works really well. This is one of the few times when “out of sight, out of mind” works in your favor.

      Thanks for chiming in Mrs Adventure Rich!

  • steveark says:

    Nice post! Prior to retiring I managed a plant. As the boss I was the highest paid but it always kind of amazed me that so many people making in the $60-$75k range drove way better vehicles than mine or my wife’s and lived in more expensive houses. $60,000 pickups pulling $45,000 bass boats and the spouse driving a similarly priced SUV weren’t uncommon. The same people were borrowing money from their 401K’s. Now I’m early retired and financially independent, still in the only house I’ve ever lived in and still buying decent, but used, cars. I could buy a much larger house and a couple of Porche’s with cash without hurting my net wealth but there really isn’t anything wrong with my wife’s 2006 Exterra or my 2011 Toyota and we love the house. Those guys are all still working and I’m playing at some fun side gigs for entertainment and getting ready to drive through three states just to see the eclipse. I guess I could have had better cars like those guys instead but I kind of like the fact that its 8:35 AM on a Tuesday and I don’t have to go in to work!

    • David @ says:

      You are doing life right steveark. We have house cleaners come every two weeks and they drive a $40,000 SUV plenty new SUV. One day, they rolled up in a new one of similarly priced SUV and they told us that their old one broke down and since they couldn’t afford to pay for repairs, they had to buy a new one.

      Say whaaaaaatt?

      If only they saved up from the get go, they’d be so much further ahead by now.

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