lifestyle inflation Let's Retire Young letsretireyoung.com Grigory Lukin

Lifestyle Inflation: the Good, the Bad, and the Ugly

Lifestyle inflation is a near-certainty, but it’s yours to control.

As we grow older or earn more money, it becomes so much more tempting to spend more on nice things, or to acquire pleasant habits that are much pricier than what our younger selves were used to. Lifestyle inflation is a fascinating subject: unless you live in a strictly controlled environment (a monastery, a commune, etc), your expenses will eventually build up.

Sometimes, you’re aware of the creeping lifestyle inflation. Sometimes, you deliberately embrace it to catch up with your peers and coworkers. Other times, it’s as shocking as a sudden slap to the face when you finally sit down to review your finances, and see the grand total, and wonder if there’s been some mistake.

I remember my 20-something coworkers when I transferred to Amazon’s Seattle HQ. I was a provincial rube, and I was horrified by their conversations where they nonchalantly talked about living off credit cards. They’d run up huge tabs and pay them off with their twice-yearly stock grants.

My coworkers were equally shocked to learn that I had tens of thousands of dollars sitting in my taxable investing account (savings from years of warehouse overtime), and that I could have $10K in my bank account within a week if I wanted to. We may have been the same age, but we were so very, very different…

Lifestyle inflation is not a terrible thing, assuming you can manage it. As inflation gradually (or suddenly) goes up, as you develop new tastes and hobbies, it’s okay to treat yourself. (See my previous post on that topic.) Most things are fine in moderation: it’s the high dosage that kills you.

If you were chugging PBR (or any other dirt-cheap swill) back in college, and decided to upgrade to crystal decanters filled with fine liquors in your 40s – that’s not my idea of fun, but you do you, especially if your income has gone up and you spend the same percentage of your money on that indulgence. On the other hand, if you start spending too much time in bars or getting blackout drunk on a regular basis, that’s not a viable long-term strategy, both for your liver and your wallet.

…as an aside, how strange is it that we, as a society, do interventions for people with addictions (followed by support groups, congratulating them on their sobriety anniversaries, etc) but never for shopaholics? At least in the United States, maxing out your credit cards is viewed as a fun activity, a commonplace indulgence, and even borderline patriotic as your mall trips stimulate the economy. Silly humans.

lifestyle inflation Let's Retire Young letsretireyoung.com Grigory Lukin
Can you think of a better symbol of consumerism-driven capitalism? (Image by mohamed Hassan from Pixabay )

I remember my Seattle coworkers obsessing over their Delta frequent flyer status, to the point where they would fly to Shanghai and back on their weekends (I am not making this up) just so they could get an upgrade in their medallion status. Much like with cryptocurrency, they never managed to fully explain to me why that investment was worthwhile.

On the other hand, I remember my Russian grandparents who spent their entire lives living far below their means. When the Soviet Union collapsed, so did the currency, and so did their savings account where their entire fortune (which nobody had known about) evaporated. They’d spent their entire lives squirreling away that cash, and in the end it was all for nothing. They lived thousands of miles away, and I only saw them once, as a kid, but I can’t imagine the kind of shock that must have been in their 70s.

Those are two vastly radical and opposite examples – as always, it’s all about finding the balance. Generally speaking, if you find yourself renting an apartment right next to the Space Needle and paying $2,700 a month for the privilege, that miiiight be a sign of lifestyle inflation. (Those are 2018 figures; the rent is likely much higher now.)

But putting all of that aside, let’s say you’re neither a Big Tech employee nor an aging communist. What can you realistically do to fight the lifestyle inflation monster? There are quite a few ways to do that. To start with, make sure you never see all the money you earn. Set up automatic allocations so that the important stuff will be taken care of before your paycheck lands in your account. For example, you can set your 401k contribution to 10%: a tithe for your future self. You can also set up a recurring monthly transfer from your checking to your savings account – or your investing account if you’d like to be more proactive.

Your bank, or your online broker, will gladly help you with recurring monthly transfers. Out of sight means out of mind, and if you don’t see the “extra” money hanging around in your checking account, you’ll be less tempted to spend it.

Also, a free pro tip: turn off the overdraft protection in your account. If you ever miscalculate something and too much money gets taken out, your bank will bleed you dry with all those “overdraft protection” fees. Your account balance will just keep getting lower and lower with every declined charge.

lifestyle inflation Let's Retire Young letsretireyoung.com Grigory Lukin
Do you work for your money, or does it work for you? (Image by Peggy und Marco Lachmann-Anke from Pixabay)

In theory, overdraft protection is there to help you; in reality, it’s a brutal punishment for not having enough money. Turn off your overdraft feature right now: if your account is low on funds, those charges will just get declined. It might cause a little awkwardness, but it could also save you hundreds of dollars.

Another good way to keep the lifestyle inflation monster at bay is to review your monthly spending at the end of each month. I’ve been doing that for years, on and off, just to know where I stand, how much I’ve saved, and so on. (Last month, my combined living expenses amounted to just $885 USD – an unexpected new low for me.) That monthly chore won’t take more than 30 minutes, but when you crunch all the numbers, month after month, you’ll have a good idea where you stand. For example, does that daily walk to get coffee with your coworkers bring you joy, or is that just a $5-$10 daily social tax?

Personally, I’m currently experimenting with living far below my means, if only to find the absolute bare minimum amount of money I’d need for comfortable survival. (Right now, that appears to be around $850 – yay Quebec rent control!) I know that 24 years from now, I’ll be able to access my retirement accounts with all their compounded gains, and live happily ever after off that. I know I’ll probably live to 75 or so, but I also know that life can be quite short and unexpected: I will gradually increase my spending each year, allowing for the lifestyle inflation while making sure not to jeopardize the grand total, but I will also treat myself, invest in happiness, and consider it somewhat of a personal failure if, at the very end, my account has a significant chunk of change left in it. Some people plan just two weeks ahead. I like to think in terms of decades – while also reminding myself to enjoy the present moment.

I’m well aware that many people’s reaction might be, “Easier for you to say, retired finance dude!” That’s perfectly fair. On paper, the fundamentals of personal finance are easy. In reality, one needs to go through the mental journey of understanding the key concepts, their needs and their wants, their long-term goals, etc in order to fully benefit from all this advice.

I remember taking a college class on world religions. The class was great, but one of the guest lecturers made a total ass for himself when he, a hoity-toity Buddhism expert, publicly shamed a 19-year-old girl with her bedazzled iPhone and told her she should stop questioning Buddhism and just dive straight into meditation and austerity. (Or at least that was how he came off to the rest of the class.)

That self-righteous advice wasn’t just arrogant, it was also counterproductive. You can give a toddler a calculator, tell him what buttons to press, and then pretend the kid knows calculus because, technically, he got the right answer. That won’t be the reality, however, and the kid might end up hating the very notion of math. Ditto for trying to force-feed 19-year-olds with latest iPhones your notion of Buddhism. (As opposed to gently explaining what it is, and letting them come to it at their own pace – maybe later, maybe never.) Ditto for personal finance experts sincerely wondering why wage slaves won’t just pull themselves up by their bootstraps.

This advice is not for everyone, and it will not benefit everyone equally. But if, at some point in your journey, you find yourself making (or spending) a lot more money than you do today, perhaps you will think back on this. Perhaps you’ll find this old post. Perhaps you’ll follow the advice. Perhaps the words I’m writing here and now, the day before Christmas in 2021, will resonate, and help, and make your life easier. In the end, that’s all this blog is for: helping my fellow travelers, no matter who, or where, or when you are.

And what about you? What horrifying and/or inspiring examples of lifestyle inflation can you share? Sound off in the comments and let me know!

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