10 Ways to Avoid Lifestyle Inflation


When most people get a raise or inheritance, the first thing they do is spend their newfound cash. They might buy a house, cars or increase their entertainment and recreation budget. What many don’t realize is that this behavior is classic of lifestyle inflation.

Here’s a look at 10 ways to avoid lifestyle inflation and make better choices with your money.

See also: 7 Steps to Creating a Personal Budget

1. Be Conscious of Lifestyle Inflation

To avoid lifestyle inflation, you have to know exactly what it is. Basically, lifestyle inflation refers to spending more as your income increases. It’s a vicious trap that keeps many in a cycle of living paycheck-to-paycheck. They get a raise or other income which gives them disposable income, yet they take on new expenses which puts them back in the same financial situation.

2. Live Beneath Your means

Getting a pay increase, inheritance or other windfall doesn’t mean you have to upgrade your lifestyle. Extra money lets you get the things you really need. For example, if your family needs more living space, there’s nothing wrong with getting a bigger place. Just don’t go overboard. If you live beneath your means, you’ll have additional cash for savings and incidentals.


3. Stick to a Budget

Some people with a lot of disposable income might feel they don’t need a budget. But even if you have more than enough cash to cover your expenses, budgeting is an excellent way to track how much you actually spend and where your money goes. A budget can reveal a lot about your spending habits. And after a self-evaluation you may be motivated to make better decisions.

4. Pay Off Debt

Rather than upgrade your lifestyle, take your extra money and pay off debt. This includes credit card debt, car loans, student loans and perhaps your mortgage loan. Paying off debt frees up cash that you can invest in your future. You can better plan for retirement or build a rainy day fund.

5. Save Your Raise or Windfall

If your old income adequately provides for you or your family, pretend you didn’t get a raise or windfall. In other words, live off your old income and save the difference. Therefore, if you get a $10,000/year raise, that’s $10,000 – after taxes – you can put into your savings each year.

6. Open a High-Yield Savings Account

Not only should you save a pay increase and other free money, keep this money in a high-yield savings account, such as a certificate of deposit, an online savings account or a money market account. You’ll earn a better rate of return than a regular savings account, which grows your deposit faster helping you reach your goals sooner.

7. Pay Cash

If purchasing a high-ticket item, fight the urge to apply for financing. Getting a loan creates another monthly payment, which can eat at your raise. Instead, save up and pay cash. This way, you don’t have to worry about repaying a bank and you’ll save a ton in interest.

8. Avoid Guilt Spending

If you’re doing better financially than your friends and family, you might feel a twinge of guilt. Additionally, you may feel obligated to help others with their expenses. This isn’t your responsibility. Besides, if you’re taking care of other people’s finances, it’ll be harder to reach your financial goals.

9. Stop Trying to Be Like Everyone Else

Some people think they need to dress a certain way, drive a certain car or live a certain lifestyle to be accepted. Trying to keep up with the Joneses can leave you broke. If an inheritance or pay raise puts extra money in your pocket, don’t worry about looking good in the eyes of others. The more you spend trying to impress others, the more likely you’ll end up living paycheck-to-paycheck again.

10. Shop Smart

Just because you have a few extra coins in your bank account doesn’t mean you have to stop discount shopping. To avoid lifestyle inflation, shop smart whether you’re buying clothes, household goods or furniture. Look for sales and clearances, and use coupons whenever you can.

Making better money decisions starts with changing your mindset and the way you spend money. Lifestyle inflation is a real problem, but if you learn to recognize these habits it’ll be easier to avoid this trap.