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:
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.
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.