4 Ways to Overcome Lifestyle Inflation and Live Free

Lifestyle inflation is when your income goes up and your lifestyle follows right along. 

So when you get a raise, you don't use it to pay down debt, save more for education or retirement or your dream vacation, or give more to those who struggle to get just the basics.  No.  When you get a raise, you enlarge your cost of living.  You buy a bigger house or a fancier car, you upgrade your electronics, you splurge on designer clothes, or you increase your personal maintenance costs (read: salon, spa, and personal trainer services).

After all, you worked hard for that promotion and you deserve all those treats.

Most of us do this.  My husband and I did it back in the day.  Within months after he signed his first public school teaching contract (effectively doubling his salary from the small church school in which he'd started his career), we had bought a house (borrowing the down payment), leased a new and larger car, bought new furniture, and started eating in restaurants a lot more often.

In fact, we spent more money in that year that Jon's rise in pay could cover.  So the other addition to our financial situation was thousands of dollars of credit card debt.

Comparisons steal your joy.

Our behavior was and is totally normal in modern American life.  We weren't doing anything different from what most young couples around us were doing.  If you looked at our salaries and looked at our lifestyles, you would wonder, "How are they affording that?"  But when all of your friends and acquaintances are taking nice vacations, buying recreational vehicles, and carrying designer handbags, you get busy comparing what you have to what they have, and you don't stop to think about what the stress of juggling bills or carrying debt might be doing to them (and their relationships).  You just feel desperate to keep up.

Comparisons don't just eat up your paycheck, they steal your joy.  They make you dissatisfied with what you have, even if it's something you were originally excited about getting.  Comparisons feed on your insecurities and make you feel that you'll never measure up.  You're always looking ahead to what you desire, not with patience or planning, but with impatience and greed.

Before you know it, your attitude toward money has become "get it, spend it."  Or even "spend it, and you'll pay it back someday."  Because you believe that debt is a normal, even necessary, part of life.

But it's possible to think and live differently.

How to avoid lifestyle inflation

I'm going to suggest that you do something unusual in this era of hyper-consumerism and ever-present influencers.  Look within yourself.  If you want to make financial progress, you need to begin there.

1.  Understand your values.

Your values should be your own – not your friends', your neighbors', or even your parents' or siblings'.  And your values shouldn't be controlled by retailers or social media.  But too many of us don't take the time to understand what we value.  We just go with the flow and wind up living a life someone else has chosen for us, which is not a recipe for lasting satisfaction or happiness.

As financial expert Rachel Cruze* reminds us, "All of your money decisions will flow out of what's important to you."  That means college selection, career choice, where you live, what you drive – everything.  She continues, "Since every dollar you spend is a reflection of your values, it's crucial to take time to think about those values.  Write them down, and then use them to create your financial goals."

* This blog is reader-supported.  If you buy through my links, I may earn a small commission.

Your values might include:

• living debt-free
• spending quality time with your life partner
• making memories with your family
• improving your physical health
• being generous
• retiring comfortably

That list could be translated into these financial goals:

• Pay off debt, and save up for things so you can pay with cash.
• Budget for epic date nights once per month.
• Create a savings fund for family vacations/experiences.
• Budget for home-cooked meals with organic ingredients.
• Plan regular donations to causes you care about.
• Invest 10% (or more) of your income for retirement.

Here's how this helps with your daily money decisions:  If you know you want to save for a special family vacation, you're more likely to look for free and low-cost weekend activities, and resist the theme park or blockbuster movie (plus snacks) that another family indulges in.  If you're focused on good health, it's easier to say no to the $10 fast food meal so you can afford organic produce instead.

"Knowing your values makes it easier to avoid lifestyle inflation," writes Cruze, "because when your paycheck comes in, it goes straight to work on your goals."

2.  Set up automatic transfers.

Reduce the number of financial decisions you have to wrestle with by making some of them automatic.  When your income goes up, decide what you want to do with the surplus.  Yes, some of it may need to go toward price increases (which occur slowly or suddenly, but relentlessly).  But with your values determining your goals, commit to those goals by setting up automatic payments so you don't even have to think about where the money should go.

Setting up automatic payments makes it a no-brainer to pay extra on debt or add money to savings, and keeps you from wasting that raise on things that won't help you achieve the life you really want.

Related article:  The Easy "Multiply Your Savings" Plan

3.  Be careful with social media.

Your smartphone is a window into the lives of other people.  If someone you know (or follow) is taking a fantastic trip or sporting the latest fashions, social media will make sure you know about it!

Maybe you think you're pretty good at resisting the lure of comparison and over-consumption, so I'll simply challenge you to take a short break from Instagram or TikTok and see what happens.

• Do you find it easier to notice and savor your own life instead of comparing it to someone else's?
• Do you think more of your own thoughts instead of checking to see what others are thinking and doing?
• Do you – perhaps – spend less money?

4.  Find your supporters.

While you're getting out of debt, you might be driving an older car with a fading paint job instead of a shiny new Tesla.  Some people might look down on you for your driving choice, but others will understand why having a reliable, completely paid-for car is a treasure.

When you stay in your perfectly adequate starter home instead of upgrading to the hottest new neighborhood, some may just think you're poor, never realizing that your satisfaction, confidence, and net worth are actually healthier than theirs.  Others won't judge you by your square footage or the newness of your appliances, and will simply appreciate your warm hospitality and lack of pretension.

Your true friends are the ones who don't look down on you, but encourage you as you work toward your goals.  And if you have a friend who lives within her means yet can afford the nice new vehicle and long-planned trip to Prague, you won't be jealous.  You'll see her success as inspiration for your own financial journey.  You know that remaining true to your own financial goals will pay off in the long run.

You know you've overcome lifestyle inflation when you can be happy for someone else's success while working toward your own.  Here's one final inspiration from Rachel Cruze:  "Love your life, not theirs."  That's true happiness and freedom!

If you found this post helpful, you'll appreciate my book, Simple Money, available on Amazon in hardcover, paperback, and as an e-book.  Learn to consume less, appreciate more, and use your money to accomplish the things you really care about.