How to Avoid Lifestyle Inflation … and When to Embrace It

A strange thing happens every time my income increases. My life magically gets… easier, better, and happier.

Getting my very first raise at work made it easier for me to pay off my student loans ahead of schedule. That meant the money I used to spend on student loans could instead be spent on making my life more comfortable. And that meant moving out of the house I rented with six roommates and finally buying decent food.

Getting a job that cut out my daily commute allowed me to spend more time doing things I love instead of impotently cursing the traffic. I could get drinks with friends after work, or go to the climbing gym, both of which cost money. Or, for free, I could stand by the highway yelling “SUCKERS!” at passing commuters at 5:30 p.m. every day!

And getting a new job at almost double my previous salary meant I could afford things I previously thought would take years of saving. Plane tickets to a friend’s destination wedding in Mexico. Drywall for my unfinished basement. Eating at a shmancy restaurant without checking the menu for prices.

If all of this sounds suspiciously like lifestyle inflation, that’s because it is! And yet I feel no guilt over inflating my lifestyle from time to time when my income significantly increases.

This is generally considered a cardinal sin of personal finance. It’s right up there with buying lattes or taking the name of Dave Ramsey in vain. So let’s unpack that.

How to define “lifestyle inflation”

Lifestyle inflation essentially means that when your income increases, so do your expenses. And it’s generally considered bad because it means that no matter how much you earn, you’ll never be financially free.

Here’s how the math works: You get a 10% raise, and instead of increasing your savings rate at all, you just spend 10% more money on stuff. You step up your lifestyle to make it 10% more bougie, 10% more expensive.

It’s seen as one of the great obstacles to achieving financial independence. Can’t seem to save any money every month? Well, that’s because you’re inflating your lifestyle every time you get a raise! Instead, you should endeavor to keep your expenses exactly the same, no matter how much your income grows.

Why it’s so easy to inflate your lifestyle

George Leigh Mallory, when asked why he wanted to summit Mount Everest, simply answered, “Because it’s there.” Weirdly enough, this is the same answer I give when asked why I ate all of the leftovers!

It’s also, for many, a reason to spend money.

This is honestly not a judgment of those who can’t hold onto money without spending it immediately. Some of us just have slippery palms! And there are a lot of reasons why someone might spend, rather than save!

One reason might be an inherent mistrust of banks and financial institutions. Which I don’t blame at all. Another might be because someone is living in a financially abusive situation.

And have we mentioned the disability rights movement recently? Now there’s a demographic constantly financially fucked over in new and exciting ways. One of the many ways government policy discriminates against disabled people is by removing their ability to legally save money and still collect disability insurance.

So again… I’m not here to judge.

But beyond these individual reasons, I do think there are strong cultural forces encouraging lifestyle inflation.

A cycle perpetuated by one-sided comparison

Once someone achieves a comfortable way of life, it’s a little baffling why lifestyle inflation can still take hold. After all, there’s only so much you can spend, right? At some point you have to outearn even the wildest spending tendencies. Right?

Yet clickbait articles about households struggling to get by on $400,000 a year seem to imply that there is no end to the potential for lifestyle inflation.

I have my own theory about why this is the case. And that theory is definitely more complicated than humanity’s collective urge to “keep up with the Joneses.”

My theory goes like this: when situating ourselves within the socioeconomic hierarchy, we tend to compare ourselves to those who have more rather than those who have less. Thus, a person making $400k a year doesn’t feel wealthy because they’re looking up the hierarchy at the millionaire… not down at the minimum wage worker.

And yeah, compared to Elon Musk, most of the top percentage of income earners in the country ain’t got shit. But since when does comparing yourself to Elon Musk in any way make sense? Most of us also won’t father spawn with literal alien warrior princess Grimes, either. Musk, along with the entire top 2% or so of income earners in the country are outliers that skew the whole data set!

It would be far more logical to compare yourself to the bottom 98% of income earners to determine just how “rich” you are. Look at those who have less than you before deciding if your lifestyle needs to be inflated. Because this one-sided comparison to those who have more will make you constantly feel lacking.

So, in other words… lifestyle inflation is perpetuated because y’all want to keep up with the Joneses. Let it never be said that I ever wrote in 5 words what could be said in 500!

One weird trick to avoid lifestyle inflation!

If your goal is to avoid lifestyle inflation at all costs, then the solution is ludicrously simple:

  1. Automate your savings.
  2. When you get a raise, increase your savings rate an equal amount.
  3. That’s it. That’s the whole trick.

Automating your savings is a good idea in general. It’s certainly easier to save money when you can just set it and forget it instead of making it an active step you have to take with each paycheck. Plus, the theory is that you won’t miss what you never had. So don’t give those savings the chance to end up in your checking account where you can easily spend them. Stuff them directly into a savings or brokerage account instead, where they’ll be safe from your spendy ways.

Step two requires a little more self control. It means revisiting your automated savings every time you get a raise. And doing some math.

If you get a 10% raise, then increase your savings rate by 10%. You’re technically making more money, but nothing will change about how much of it you spend. If you make $50k a year and you live on $30k of it, then when you get a new job at $60k a year, you should continue to live on $30k a year. And like magic, you suddenly have a 50% savings rate!

So don’t change your lifestyle. Don’t increase any line item on your budget. Just stick your raise in savings and pretend it never happened.

A less aggressive approach

But let’s say you’re not so militant about lifestyle inflation. Maybe you want to make a conscious effort to save some of that money, but you could also really use some of it to improve your life.

Move into a better home. Start buying healthier groceries. Buy running shoes or exercise equipment to help you stay fit. Take a vacation. Go to the dentist for some long-delayed dental work. Buy a warm winter coat. All of these can demonstrably improve someone’s life. And they all require money.

As with so much of our financial advice on how to indulge yourself, it doesn’t matter what you do with the money or even how much of it you spend, so long as the “what” and “how much” are intentional.

No not like that.

Intentionally choose what you’re going to buy with your increased income to give yourself a better life. And intentionally choose how much of it to spend on life-betterment!

… Then bank the rest. You’ll be embracing lifestyle inflation, but not to a damaging degree.

A little lifestyle inflation isn’t a bad thing

Money is a tool. You’re supposed to use that tool to make your life better, not let it rust away in a shadowy corner of the garage.

This is why a little lifestyle inflation isn’t necessarily a bad thing. When your income increases, it’s ok to use some of that extra income to improve your situation. Don’t feel guilt about using the tool of money for its intended purpose: to make your life better.

For a lot of people, the best use of their inflated income will be to increase their retirement plan contributions. For others, it’ll be to increase their debt repayments, or make regular deposits to a brokerage account, or start pursuing early retirement and financial independence. These all come with the Financial Advice-Giver Seal of Approval.

But for some people, an increase in income could be their ticket out of a basement apartment they share with sixteen cockroaches and the trumpet player for a ska band (I don’t know which is worse) and into a more expensive—and more habitable—home. And that is perfectly fucking fine.

Don’t be bullied into avoiding lifestyle inflation just for the sake of avoiding lifestyle inflation. Or for proving your frugal, minimalist cred or whatever! If your life sucks and you could use a raise to make it better…

Whoever said “money can’t buy happiness” was a dick

Lately I’ve been thinking of the old adage “money can’t buy happiness.” Specifically, I’ve been thinking about how I fucking hate it.

Because yeah, strictly speaking, money can’t buy happiness. But being happy is a whole lot easier when you can afford therapy.

It’s a fucking wet blanket of a judgmental platitude. It feels like it’s trying to shut down any celebration of increased income. Worse than that: it almost makes it feel like we should be ashamed of making more money and using it to inflate—no, improve—our lifestyles. Which again, is exactly what the tool of money is for.

The subtext of “money can’t buy happiness” is that we’re focusing on something as petty as money when we should be focused on… fuck if I know, inner peace???

Poverty has violent effects on mental and physical health. This is a fact. So to minimize the effect of money on happiness in light of this data is… downright insulting. It’s a condescending and patronizing way of enforcing a status quo that blatantly favors the bourgeois—[producer whispers in ear] Hmm? What’s that? Oh, sorry folks. I’ve just been informed my socialism is showing.

Point is: I think we’ve unfairly villainized lifestyle inflation. Yeah, you should absolutely try to keep your spending in check. But an intentional, moderate use of raises to improve your lot in life is not a bad thing. It’s literally what that money is for. Use it to invest in yourself and your happiness. No guilt, and no judgment!

Let’s open it for discussion. What do you think about lifestyle inflation? Should you avoid it at all costs? Or is it ok to indulge a little bit when your life could use improving? Do you have a personal tale of positive (or negative!) lifestyle inflation? Tell us all about it in a comment below.

And for some advice on how to save that bread… we got you right here:

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32 thoughts to “How to Avoid Lifestyle Inflation … and When to Embrace It”

  1. This is great advice! When my mom first started working, an older coworker gave here this advice, which she then passed on to me: Every time you get a raise, contribute 90% of the increase to retirement and the other 10% for fun. If I were to receive a salary increase of $10,000, $9,000 would be allocated to savings and another $1,000 towards lifestyle inflation. It’s worked great because you *feel* like you have more fun money, while setting aside a stash for your future self.

  2. I’m with Erin, . As a gov employee, I get incremental increases around 3%, at least as of late. I increase retirement contributions by 2% and incorporate the rest into the budget. Everyone gets a piece of the pie and their are no pie riots.

    1. I too work for the state, and my raises – if I get any (none since 2019)- are 3%. Currently, I’m able to afford basic needs, a (very) small entertainment & fun budget, and I log $150/month of automated savings. Our union is going into negotiations for our next contract in 2022 (derailed in 2020 for obvious reasons), so I’m hoping we get caught up on the salary increases that we were supposed to be trying to work towards two years ago.

  3. For all his faults, I still really like Kanye West’s twist on the ‘money won’t buy happiness’ adage: “Having money isn’t everything – /not/ having it is” which better communicates the takeaway that the adage was supposed to have. Being poor can become all-consuming, but getting rich won’t solve /all/ your problems.

    My wife and I have had some big salary jumps over the last 2 years and have contended a lot with lifestyle inflation. Sometimes it’s easier to dismiss “yes we can get chipotle twice in one week, even if their prices lately have been nuts.” Other times, like when considering a house, it’s a lot harder. Especially when you compare it to the giant, amorphous goal of “retirement.” Like sure a guest bedroom would be nice for hosting, but is it worth an extra 9 Months of working at a soul-sucking job? I don’t know if there’s an easy answer to that, but articles like this help.

  4. We just moved into an apartment that’s WAY more expensive, but we’re moving from a 1-1/2 bedroom 1 bathroom into a 2 bed 2 bath apartment. My partner and I thought long and hard, but the increase in life happiness when we spend 24/7 at home in a pandemic is extremely worth it and we can afford it. (It does push the limit, we now spend almost exactly 30% of our income on rent.) I think the counter to the anti-lifestyle inflation is that make sure you’re living within your means, but I 100% agree that using your money to improve your life is absolutely worthwhile, as long as you’re being thoughtful and making decisions that actually improve your life.

    1. Also I got a 10% raise last year because I found out there was blatant gender-based wage discrepancy – I committed to giving half of that away every month which has felt really nice. Otherwise I didn’t do much with that raise, maybe started to eat out more because pandemic is hard.

  5. This post is well timed for me – I just finished my first month in a new role where I’m making 8% more than my previous salary and have been trying to figure out the best way to use my raise. Like, how much should go to retirement and how much should go to bills (inflation ugh) and also I would just like to get a grownup desk because I’m still using the one I got when I was 11 and I’m 29.

    For a while though that raise will be stashed away to rebuild the vet fund because my horse recently drained it and then some…

    1. I love this article, bitches!! This issue was a personal bug-bear for me when I moved from working in theatre (freelance, minimum wage, max 25k/ year in major metropolitan areas) to my first salaried gig at 50k. I really had to coach myself into “inflating my lifestyle” which for me meant “stop acting like I was broke af because I WASNT” and all that lifestyle inflation advice felt like a slap in the face.

      1. You do NOT deserve to get slapped in the face with anything, let alone lifestyle inflation advice! It’s a relief to hear a theater nerd made good and is now enjoying their money!

  6. Man, I am struggling with this right now, but maybe not in the same way. We’ve been so good… worked so hard… saving so much… give away 10%… on track to retire early, no debt, etc. Been living on a fraction of our pay as we get raises over the years. Now I’m ready for a bit of “inflation”. I want a new kitchen (at least a dishwasher, maybe?) and I’d love an electric car. But what is too spendy? I don’t want to become Bourgeois… I want a Tesla but will that make me a bad guy? GUYS, AM I CROSSING OVER TO THE DARKSIDE? First world problems.

    1. I’ve found it helpful to work backwards. Set a saving goal that is a decently tough one (i.e., 20% or more) to get you to retirement in a timely fashion. Then, be reasonable on big expenses. (I could write a bunch on this but my “reasonable” may be different from your “reasonable”… I guess I’d say think carefully about what qualities in an item you’ll really need and prioritize those.) Then the difference, you can be flexible with. Maybe it’s upping your savings rate until you hit 50%. Maybe it’s working a few months or a year part time to see if you *need* to FIRE or just, like, need to rest. Maybe a dishwasher would help you save water and really be a time-saver. Maybe a Tesla is the best electric vehicle in terms of the match with your other lifestyle needs. Especially if you don’t have to take on a lot of expensive debt for these things, I say… why not? Just be aware that once you up your standards it can be hard to go back and/or you may find that you adjust to the new situation and it doesn’t *necessarily* bring you constant joy so be intentional.

      1. Thanks for the reply! We have been saving 50%, so now we do have big piles of money lying around that are enticing me. Early retirement is right around the corner. I am worried though that you can “never go back” when it comes to upgrading your lifestyle. That’s why our TV is still a 19″ haha.

    2. JOIN USSSSSS. Kidding, of course. I’m Jedi, through and through.
      Try reframing things. An electric car isn’t just a big expense… it’ll save you money down the road in gas prices AND help the environment. And a functional dishwasher will give you time back in your schedule to spend however you please. These little inflations won’t hurt, I promise!

  7. When my income doubled a couple years ago, we definitely had lifestyle inflation. We started buying season tickets to all the live theater in the city. We went to multiple fancy wine dinners that cost hundreds of dollars. And I still saved more than ever before…because I had more to save! Maxing out your company match of the 401k when you’re making 25k is still a lot less than saving a small percent of 100k.

    This year is the first time I started investing in a non-retirement brokerage account, because all that spending we were doing stopped during pandemic and I was already maxing out the retirement accounts. I’d really like to have wine dinners again though….

  8. I totally agree with you here. When you get a raise, commit some to savings right off the top. Use what’s left to improve your lifestyle, but do it by spending on things that you value, and not just frivolous expenses.

  9. Very timely for me as well. My company finally did a market adjustment to our starting wages and either increased everyone to the new starting wages for their role, OR (and this shocked us) gave everyone a 2% raise, if you were making more than the starting wage. But our insurance premiums are going up, again, so even with the raise and merit raises (the other shock, we are still eligible for merit raises) will probably be partially eaten by insurance.

    Time to review my 401K and emergency savings, see what I can possibly increase there. Growing children eat (figuratively and literally) a lot of money

      1. 12 and 9 yr old boys, that inhale plates of spaghetti and promptly outgrow the pants that were just purchased at the beginning of the school year in Aug. Not an inaccurate image, lol

  10. I can remember living off microwave rice, mac n’ cheese cups, and rice cakes in college all to be able to afford rent and gas to see my boyfriend. It’s all about having the mindset of spending on what you really want in life. I could care less about a new car and a fancy purse. I look at those things and think that is a flight and a month or more abroad! But it is a balance too. I don’t live off rice cakes anymore but I still don’t give into ads for expensive things that I don’t really want and know will not make me happy. I spend on what I like and shop at thrift stores! ( I find the best clothes there anyway)

    1. Girl, I am almost 100% a thrift store shopper at this point. I LOVE me a good thrifty find. As for the designer duds? Fuck ’em. I’d rather spend my money on good food.

  11. Your advice in regards to savings is spot on. “Save early – save often” is a cornerstone of successful wealth building. Having said that, after spending 40+ years in the wealth management business, I would also suggest that more people have a spending problem than a savings problem. Thus, the second rule of successful wealth building should be: “Spend less than you earn.” Lifestyle creep is not, per se, a bad thing. After all, what the heck are we working for? However, overspending is all too easy, especially when more of our spending is done via credit card. So maybe we need rule #3: “Have 1-2 credit cards maximum and pay off the balance every month.” Building wealth is not easy and requires a great deal of time, patience and discipline.

  12. When I get a raise I’m a big fan of 85% savings, 15% lifestyle inflation (obviously to a point, but I’ve not gotten close to that yet!). Mama been through two recessions and it’s really sucked, she deserves a holiday abroad once in a while!

  13. “A strange thing happens every time my income increases. My life magically gets… easier, better, and happier.”

    Yup! maybe it’s the pandemic but I too feel no guilt over inflation by choice and throwing money at long overdue house maintenance/food/deliveries etc.

  14. Oh you mentioned disability! Thank you! 90% of blind people are unemployed. Only reason is because we cannot get past the stariotypes of the HR department. If you are on SSI or SSDI you cre kept poor.

  15. One needs to automate a lot of things in order to make sure that lifestyle inflation does not creep in. One psychological way would be to just ignore the hike which has been received and instead behave as if no hike has been received. Automating automatic debit from the savings account too can help a lot in this regard.

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