When we think of inflation, we often think about the economy, interest rates, and our buying power. Economic inflation impacts our savings, our spending and how we look at our future finances. Unfortunately, economic inflation is out of our control. The best we can do is account for it and plan for it. However, there is a type of inflation that is within our control…Lifestyle Inflation. Lifestyle Inflation is where our consumption increases as our cash flow increases. Simply put, we tend to spend what we make and increase our spending as we make more.
The challenge of lifestyle inflation is that once we become accustom to that bigger house, newer car, nice vacation, etc. we have a hard time giving it up. Our high standard of living drives our budget, cash flow and household debt. It challenges our ability to build emergency savings, save for retirement or help our kids with college.
Here are a few suggestions to help you manage Lifestyle Inflation.
- Write down your financial goals.
- Get a budget and stick to it.
- Automate your savings.
- Resist vanity purchases.
- Give to charity, both time & money
- Prioritize family over “stuff”
- Do not finance “fun”