Dang. There it is. That’s the question. Or, maybe the answer to why we all suck so much with money. Oh, you’re good with money? Congratulations, you’re the exception. Maybe you’ve identified and kicked lifestyle inflation in the teeth. But look around at your broke, paycheck to paycheck friends and family. You know, your friends who are on financial outpatient care. Or your sister who struggles with money but won’t ask for help. We never make enough money to save. We are always waiting for a big break. A windfall of income to start saving.
Debt is just part of life. It’s necessary! Everyone has debt!
We may not know what lifestyle inflation is, but that doesn’t mean we aren’t living with it. Or completely trapped by it. Okay, maybe you’ve broken free? But what about the rest?
I’ll get off my rant and get back to business here. Lifestyle inflation is sinister. It hides, undefined and undisclosed at thanksgiving dinners. It’s the termites beneath our home eating our foundation while we sleep at night in our West Elm sheets with a belly full of Door Dashed Thai food.
How can I be expected to cook a meal after such a long day at work? Has become, how can I expect to get in my car and drive to pick up my carry out after such a long day at work? What’s next? How can I be expected to feed myself after such a long day at work? They will call it, UberFeeds – the on demand service to feed you your food. (You heard it here first.)
Lifestyle inflation is what gets us trapped and keeps us trapped in consumer debt. It’s the devil on our shoulders telling us that people will like us if we have it. It tells us that it’s time to get a bigger home. What will people think? I can’t be seen in that.
Lifestyle Inflation Defined
Lifestyle inflation is simply the slow but steady increase over time in our baseline tastes, expectations, and wants. It can be explained by the change in grocery stores we shop at over time. It’s Aldi all the way in college, then we trade up to our Neighborhood Walmart in our 20’s. But then we don’t want to be seen as the “Walmart people” so we start going to Reasors in our 30’s. And, yep, you guessed it, Whole Paycheck in our 40’s and beyond where we can rub shoulders with society’s elite and network while we sort through grass fed cheese options. Sorry, did I say Whole Paycheck? Obviously I meant Whole Foods.
Lifestyle inflation is how we start our adult lives sharing a 2 bed 1 bath with 3 roommates in college, then wake up one day in our 30’s in a 5 bed 4 bath feeling insecure about the fact that our neighborhood isn’t gated and wondering if it’s safe for our kids.
The 19 year old slamming RedBull’s trying to stay awake in his humanities class, feels like he hit the lottery when his parents send him $100 bucks on Venmo “Just because”. Then, somewhere down the road, that $100 starts to feel more like $10 of value to us. $100 won’t even buy oysters and craft cocktails at our favorite happy hour spot! Oh well, just put it on the card. We deserve it for how hard we worked this week!
A Metaphor – A Boat on the Lake
If my rants still have you lost on what we are talking about here, allow me one more chance. Our lifestyle is our annual spending. It’s our allocation of resources. Our monthly nut. It’s the amount we need to pay for our lifestyle. For most of us, our lifestyle is a boat sitting gracefully on a calm lake. We are safe in the boat. If the lake levels rise, we are good! The boat will rise with it and keep us dry and safe! If the lake levels fall after a long drought, that’s totally fine too! We are safely locked in above the water line.
If you haven’t figured it out yet, the problem here is the lake level is our income..
When we let lifestyle inflation run rampant in our lives, it doesn’t matter if we are flipping burgers at McDonald’s making $8 an hour or fresh out of our residency operating on brain tumors making $302 an hour. Our lifestyle always sits ever-so-comfortably above our income. Keeping us in debt. Keeping us broke. And keeping us a slave to the lender.
A Financial Superpower
Everyone thinks that their bad financial situation is unique to them and there’s nothing they can do about it. My husband just doesn’t make enough money. My wife spends everything we make. Oh we have 4 children, you don’t understand.
Everyone has an excuse for why they can’t get ahead. Why they can’t save money. Why every time the car breaks down it’s a crisis completely out of their control requiring help from Mom and Dad or an increase in their credit line.
Dave Ramsey says it all, “Personal finance is 20% knowledge, 80% behavior.” The truth is there is no great secret to building wealth. Wealth isn’t hiding just behind that next job, or that perfect stock pick. Wealth is in behavior and it’s in breaking the cycle of lifestyle inflation. The hard part about changing our financial situation is that it requires changing our behavior. Recognizing and changing our propensity to buy our happiness, respect, and admiration with our income.
Lowering and locking in our lifestyle is what frees up our lives. It’s what creates the margin to pay down consumer debt and invest. It’s what enables cash flowing our emergency expenses like broken down cars or hospital bills. You’ve probably heard the quote made famous by Jocko Willink, “Discipline equals freedom.” What a great quote. And it couldn’t fit more appropriately in this conversation. Being disciplined with our money is the only way to break the chains of lifestyle inflation. It’s the only way to get our financial freedom.
The financial superpower is deciding to live below your means while all your friends and family are living large. Building wealth is hard because it requires us to live like no one else. If we are willing to live like no one else for a little bit, then we can live like no one else for the rest of our lives.
Capsize the Ship
To continue with the metaphor above, we have only one option. We must capsize the boat, grab our oxygen tanks, and head down as far as we can comfortably dive. I know, I know, this is a stupid analogy. But let’s for a moment talk about what this actually looks like in real life.
Small Sacrifices
Lifestyle inflation tells us that both adults in our home need a car. Not only that, we need a recent model car that reflects our income. When we land a new job, how do we reward ourselves? We go finance that Toyota Tacoma that we’ve been talking about for years.
And what about when we start having kids? At what child does our starter, 3 bed 2 bath house become “unlivable”? Whether it’s a bigger backyard, a bigger nursery, more rooms, we struggle to ask ourselves how we might make our current circumstances work. It’s easier to buy the solution to our problems than to challenge whether our problems actually exist.
There are literally hundreds if not thousands of ways lifestyle inflation erodes at the foundation of our financial home. It’s eating out, financing boats, cars, or homes. It’s big, extravagant vacations, remodeling the house every year. New clothes, getting our hair and nails done. Replacing anything and everything to keep up with the “influencers” that we follow online. Fortunately for them, they make a ton off their influence. Unfortunately for us, we’re the only ones actually buying the stuff.
Large Sacrifices
Maybe capsizing our ship means big decisions like selling one of our vehicles or downsizing our home. It could mean leaving a high cost of living state like California or city like New York City. We are all susceptible to lifestyle inflation and a small amount of it can be healthy. But when it starts running rampant in our lives, we have to get it under control and let our income grow faster than our lifestyle. That’s how we maximize that spread between our income and our cost of living. That’s how we save 3 years of living expenses in a single working year.
Deciding to be a crazy person and save 60% of your income while your friends and family struggle to save 5% if at all is a decision that opens up freedom and flexibility in your life. You put yourself in a place where all it takes is a month to replace your depleted emergency fund. Or a handful of months to save up enough cash to buy a new car outright.
Awareness is the first step. Being aware of the sinister effect of lifestyle inflation is critical to getting our financial lives under control. But not only “under control”, this very awareness is what explains the strange behavior of people and their finances. It’s what explains high income surgeons or lawyers having a negative net worth. It truly is not about how much your make. It’s about how much you keep. And if you’re not watching lifestyle inflation like you watch Cobra Kai on Friday night, then it’s going to feel impossible to get ahead.
A Call to Comment
What does lifestyle inflation mean to you? Did you have a “Ah-ha” moment when you realized you’ve been living with lifestyle inflation riding shotgun? What sacrifices, big or small, have you made to eliminate lifestyle inflation’s eroding of your income? Is lifestyle inflation something that you discuss with friends or family?