Making More? Spend Less

Some ways to avoid the dreaded “lifestyle inflation”

Let’s say you just got a promotion and a nice, big pay raise to go along with it. You call your husband and tell him to get a sitter and meet you at your favorite restaurant — it’s time to celebrate. While ordering wine, you glance over the $32 bottle you typically order and instead pick a $45 bottle. It’s fine, you say to yourself, I can afford this now. This is how “lifestyle inflation” — spending more once you start earning more — can begin. Now let’s examine a few ways to avoid this financial folly.

Keep daily spending low. One easy way to avoid lifestyle inflation is to concentrate on the small things. Keep your everyday spending as close to what it was pre-raise. If you always brought your lunch to work before the promotion, keep doing that after the promotion. You can still spend a bit more on other things, but keeping your everyday spending at or close to par will help in the long run.

Increase your savings. While your daily spending should remain low, your savings rate should not. As soon as you get that first bigger paycheck, bump up your auto savings contributions. This will keep the extra money from burning a hole in your wallet and put some extra padding in your retirement and other savings accounts.

Keep the big picture in mind. As US News reports, one way lifestyle inflation takes hold is by increasing your frivolous spending. You suddenly have more money, so spending a little here and a little there isn’t as big of a deal. Avoid this trap by focusing on your long-term goals. Spending impulsively will only hurt your chances of that dream vacation or a relaxing retirement. Try to remind yourself of the big picture and you’ll be less likely to let the small spending sprees get in the way.

Chris O'Shea

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