Give Me Back My Five Bucks

Can lifestyle inflation be avoided?

As we get older and progress through our careers, it’s natural to see our salaries increase with raises and new jobs – and as a result, the cost of how we live our lives will likely increases as well.

This is lifestyle inflation – an increase in the amount (or even the type) of stuff that we purchase. Whether it’s a result of wanting to keep up with the Jonses, or a feeling of self-entitlement, or even small changes (like buying name brand orange juice instead of the generic brand), it can (and likely will) happen to even the most budget-conscious person.

I’ve been keeping detailed monthly budgets since I started tracking my spending over six years ago, so I thought it would be fun to see how much my spending has increased over the years in relation to my income level.

Here is a chart with an approximate month’s worth of spending for me:

lifestyle_inflation

That’s a significant increase in my spending ($925/month), and most of it is because of the difference in rent versus a mortgage (and maintenance fees, property tax). I also bought a car, so now I have to budget for insurance and gas every month, whereas in 2007 I walked to work.

In 2007, my total monthly expenses worked out to be around 34% of my gross monthly income, and in 2013 my total monthly expenses are sitting around 35% – showing that my expenses have increased almost exactly at the same rate as my income increased.

Now, this is good because I’m not spending at a faster rate than I’m earning… and because the left over money after my expenses are paid is much larger now than in 2007, I’m also able to save at a faster rate than I was before. But this analysis of my spending is pretty eye-opening when you consider if I had kept living the way I was living in 2007, I could be saving an additional $900+ every month. $900. That’s not a small sum of money, and certainly something to think about.

Financial priorities

For me, I’ve always tried to keep a good balance between saving and spending. Over the years, while I have spent significantly more money on my housing and car, the money I spend on other items – like groceries, entertainment, and personal care, have roughly stayed the same.

What has also stayed the same are my financial priorities. I always try to save between 30-35 per cent of my income as a minimum, as well as make additional payments to my mortgage. And I think as long as my spending stays consistant to my income earned, I’m living a balanced lifestyle. Money is made to be spent. And after getting out of debt and saving for a down payment, I’m finally able to enjoy my money a little – while also keeping a close watch to make sure my savings goals are still my top priority.

I think it’s almost impossible to avoid lifestyle inflation, and I’m a good example of that. In 2007 as a 24-year-old, a splurge was spending $10 at my favourite take-out restaurant once a month. Now, I don’t think twice about going out for a $10 meal (although I do try to limit my dining out to once per week). Instead of shopping at cheaper clothing stores, I’m spending more money buying higher quality pieces that fit me better and will last longer. I have an iPhone now, instead of a normal non-smart phone. There are plenty of small ways that I can see my spending has increased. But it has also increased my quality of life. Having the flexibility to spend more on the things that I enjoy definitely makes me happier, and makes it worth all the hard work I’ve put in to raise my income to where it’s at now.

But even though I don’t think lifestyle inflation can be totally avoided, I feel like as long as I’m always meeting my savings goals, and progressing towards my long-term goals of paying off my mortgage and retiring early, I’ll be able to make sure that it doesn’t take over my life.

Do you think lifestyle inflation can be avoided?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Elizabeth says:

    I think it can be avoided, especially if you budget down to the penny and know generally at what rate inflation is going. That said it is not necessary to avoided if you have no debt and are saving for the future. There is no point dying with a million in the bank (unless you want a really nice funeral.) Personally I’m planning to freeze my lifestyle for the next 5 years so that I can get my mortgage payed off and move on with other goals in my life.

  2. Michelle says:

    I think it can be avoided, but it also depends on where you are coming from. If you were not happy before and made a very low amount of money (such as being a broke college student), I think it would only be normal to have lifestyle inflation once you get that first job.

  3. Mrs. R says:

    It can be avoided, but it takes a great deal of self control. My husband and I nearly doubled our income a few years ago, and for the first 24 months we found ourselves buying higher priced items, or taking spur of the moment getaways. Once we realized how much money we were spending on things that would have been considered unnecessary or not affordable prior to those increases, we made changes to our budget, and have managed to save more money. It’s great to have nicer things when you make more money, but there has to be a clear understanding of what is just irresponsible spending.

  4. Anon says:

    Although a portion of your current mortgage payment is going to mortgage interest ( = expense), remember that another portion of it is going to equity ( = “savings”). Whereas 100% of your rental payment was an expense that could never be recouped.

  5. StackingCash says:

    I used to have a saying on my old AsianAvenue.com webpage, long gone by now. Balance is the key to happiness, but extremes make it a little bit more exciting. I feel like I have great difficulty balancing saving versus spending. Like you mentioned before, a home and a vehicle can be major expenses. Or not, depending on what one wants or needs. For me, however, they are quite expensive because I really enjoy the nicer things in life. Such a weakness to have…

  6. We definitely had lifestyle inflation for the first six months post school life. We started earning more and thus we felt entitled to spend more.

    We have realized early we don’t want that life. Well maybe my reminders to my husband of living below our means finally got through :)

    This month we have decreased our spending already! Next month the goal is to decrease it by $200. Then we will be at our sweet point :)

  7. Evan says:

    How do you distinguish between lifestyle inflation and just boring old inflation/outside forces? Like maybe that is what rent just is now for same place?

    • Krystal Yee says:

      Well looking at what I spend on things like groceries, gas, entertainment, etc. – all those numbers pretty much stayed the same. So no matter what the inflation rate has been since 2007, I’m still spending the same amount. As for rent, there are still apartments (like the one I used to live in) that rent for between $700-800 in the neighbourhood. Except that I don’t live in an apartment now. I live in a townhouse in a more expensive part of town. So, based on those things alone, I feel like they are definitely examples of lifestyle inflation, and not “regular” inflation.

  8. Diedra B says:

    I think Evan has a good point.

  9. Miiockm says:

    I think you actually held it in check pretty well, with the mortgage being the only significant increase.

  10. janesavers says:

    I am trying to keep expenses the same but some things just go up in price. My cell phone, land line and cable costs are lower than 5 years ago but food, gas, house insurance, car registration and property tax have gone up in price and I can’t do much about that.

    If I ever got a raise I would bank it but there are no raises in my future. Gas at the 7/11 near my house was $1.29 today.

  11. greg says:

    of course this is a very personal decision for everybody, and I feel it is well-informed by good data above.

    I personally evaluate things quite differently, and would characterize it simply in my personal values that are quite against the assertion “Money is made to be spent.” I personally hold the view that everybody has a demand curve which denotes the point at which the utility of another dollar is not enough to defer spending at a “standard” societal level. That point happens to come much later for me.

    I am also of the opinion that this requires a boatload of qualifications if dealing with even a slightly-nuanced version of the issue:

    “I think it’s almost impossible to avoid lifestyle inflation”

    Over the past 4 working years, my expenses as a portion of my (increasing) income has steadily progressed downward: 35% -> 27% -> 20% -> 16%. This is effectively a 54% reduction in the ratio for a corresponding 44% increase in income.

    IMO an interesting way of looking at varying preferences is a-la “The Millionaire Next Door” regarding how it contrasts characteristics of building wealth as distinct from earning income.

  12. S. B. says:

    I suppose it can be avoided, but perhaps a better question is whether it should be avoided. If your income is increasing in real terms and you’re already saving a decent amount, why not? You can’t take it with you when you die. :-) If lifestyle inflation occurs in a conscious and deliberate way, and makes sense relative to your income inflation, I certainly see nothing wrong with it.

    • Krystal Yee says:

      Agreed. I think that some forms of lifestyle inflation are okay, but when you actually break it down and realize you’re spending $900+ more each month than you were before… it just kind of makes you stop and think. :) That’s over $10,000 extra spent each year. Would be awesome to have an extra $10,000 to put towards my retirement, but like you said, balance is the key.

  13. Andrew Clayden says:

    The rent vs. mortgage aspect here is very important. You are investing in your own net worth rather than giving rent to a landlord. Yes, part of the payment is for interest, etc. but overall this amount is being invested in your wealth. Perhaps you could work out a calculation to fit this into the article…..?

    • Krystal Yee says:

      Definitely agree with you, but I’m always super cautious when it comes to real estate. Who knows what I’ll be able to sell my home for when I decide to leave this place, and once I factor in the monthly maintenance fees, property tax, renovations, and upkeep… I wonder how far ahead I’ll actually be.

  14. Brent @ VOSA says:

    I love love love the picture of the Porsche you used! Old school and amazing!

  15. I’m a few years out of college and I spent the same as I did back then. But soon I’ll buy a house and travel more. So that all will be expensive. But I always make sure, like you, to keep my savings goals ahead of my spending desires. As long as I’m maxing out my Roth IRA, 401(k), and doing side hustles, I’m happy with a little inflation.

    I am a tiny bit worried though… I do like Porsche’s quite a bit.

Leave a Reply

Buy the Book!

A beginner's guide for Canadians looking to get their financial life in order. Get great info on budgeting and saving, RRSP's and pensions, investing types, insurance, and where to go for additional resources.

Recent Tweets

Instagram

  • I cant believe how many vegetarian sushi options there are!!!hellip
  • A fresh coat of paint really brightened up the place!hellip
  • Every year it seems the mariners vs bluejays series inhellip
  • Sushi night! vegetarian
  • Seats arent too shabby for tonights bluejays game!
  • A gal could get used to this view homesweethome newwest
  • Had an amazing time at the vegexpo today with onebitetoomany!hellip
  • Taking the train down to Seattle this morning for ourhellip

© 2017. Give Me Back My Five Bucks. All rights reserved. Powered by WordPress & Designed by Mike Smith