How to Prevent Lifestyle Inflation

When your income goes up, it's easy to start spending more.


The idea of lifestyle inflation is that as your earnings increase, your spending increases as well. What you considered to be an adequate car or house at a lower salary is no longer acceptable when you start earning a higher salary. Lifestyle inflation is not necessarily a problem, but it can be if it occurs to the extent that it keeps you from meeting your financial goals. There are several ways you can prevent or at least reduce lifestyle inflation.

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Have a Plan

If you already have a plan on how you are going to allocate any increases in income before you receive them, then you are less likely to spend them on things that are not really important to you. If you are moving to a nicer apartment or buying a nicer car you need to investigate how that will affect your financial goals and make sure you don’t forget any related expenses. For example, if you buy a nicer car, your insurance will probably be more expensive and you might want to wash if more often. Make sure the value you receive from increased spending is worth the money.

Save a Percentage of Your Income

If you save a set percentage of your income when your income increases, then the amount of your savings will also increase. To make this strategy even more effective, consider increasing the percentage of your income you save every time your income goes up. You won’t miss the money if you never see it in the first place. If you make your savings automatic, this step is even easier.

Make Changes Gradually

When you buy a nice car or a new house it may seem great at first but eventually you will get used to it. After you get used to it then you might want an even nicer car or house to make you happy. The ability of humans to rapidly get habituated to their current situation is known as the hedonic treadmill. A strategy suggested to deal with this at My Money Blog is to slow down your hedonic treadmill. You don’t buy another new thing until the happiness from buying the previous new thing has diminished. An example from the article is to not buy a new couch until you have become used to the new television. Doing this will also have the effect of slowing down your lifestyle inflation.

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Keep a Balance

When your income increases you probably don’t want to save the entire increase. If you deny yourself anything from your income increases it is going to be hard to stick with your financial plan. It is ok to have some fun with your money. You just need to keep a reasonable balance between your saving and spending.

You probably won’t be able to completely avoid lifestyle inflation and that probably isn’t a good idea anyway. Even a tight-fisted miser like me succumbs to some lifestyle inflation. Following these tips though will help keep lifestyle inflation under control.

Andy Hough writes about frugality and living well on a small income at