5 Ways to Avoid Expensive 'Lifestyle Inflation'
You've heard the seemingly outrageous stories of families who earn hundreds of thousands of dollars and still can't make ends meet. How can that happen?
One of the biggest reasons that high-earners struggle to pay their bills is lifestyle creep. Here's how it happens: As people gradually earn more money, they begin to buy more expensive things, and those purchases often result in a lot of debt, maintenance, taxes and expensive insurance bills. Over time, the bills required just to keep and maintain those expensive items can gobble up your income, leaving you with all the old worries and more career stress than before.
The way to avoid that trap is to take steps to avoid lifestyle creep entirely. Here are five simple strategies for keeping your spending down, even after your income increases.
[See: Spend a Windfall Wisely.]
Maintain your lifestyle as you receive raises. An increase in income shouldn't mean that it's time to buy a bigger house, shiny new cars or a bunch of new toys. Instead, look at that raise as an opportunity to stabilize what you already have and plan for the future.
The first step in that process is to be conscious of your current lifestyle and make an attempt to not "improve" it. Make a concerted effort to dodge new bills and avoid increasing old ones. When you go shopping, strive to keep those receipts close to where they always have been. Don't let them slowly increase.
Keep the cost of your average day as low as possible. An occasional splurge in your spending is fine, but the most powerful way to avoid lifestyle creep is to simply keep the cost of your typical day as low as possible. If you add another daily expense or monthly expense to your life, or you bump up one that already exists, you're making your financial life progressively more challenging.
The best way to do this is to establish a simple normal daily routine that's low in cost (and that includes your ongoing monthly bills), then avoid adding to that routine. You can always have a special day when you spend more, but that default day should be as inexpensive as possible.
[See: 10 Big Ways to Boost Your Budget -- Without Skimping on Your Daily Latte.]
Automatically put aside money for big goals and bump up automatic savings when you start earning more. One of the most powerful tools you have for avoiding lifestyle inflation is setting up automatic contributions. You can automatically contribute to your retirement. You can set up automatic withdrawals to pay down your debts. You can automatically contribute to your children's 529 college savings plans.
As soon as you receive a raise, ramp up those automatic contributions, so you have the same money coming in and staying in your checking account as you did before the raise. Increase what comes out of your paycheck, and increase the automatic withdrawals from your checking, so what's left behind is the same as before. That way, your lifestyle doesn't inflate and you're merely accelerating progress toward your goals.
Keep your housing costs as low as possible instead of upgrading. Housing costs are one of the biggest elements of lifestyle creep. Buying a more expensive home adds to your property taxes, maintenance costs, insurance, association fees and other bills. Those extra costs are often not considered when evaluating a home purchase.
A much better approach is to choose a starter home that can be fixed and upgraded gradually over time as you save up for those expenses. This allows you to keep careful control over all of those extra costs and gives you control over the exact kind of home you wind up with, one that perfectly meets your growing desires.
[See: 6 Ways to Treat Yourself on a Budget.]
Remember your big goals and review them daily. Lifestyle creep often occurs when people take their eyes off their long-term money goals and start allowing themselves to be governed mostly by short-term desires and impulsive spending. Keeping your eyes on the big prize makes it easier to avoid lifestyle creep.
The best way to do that is to constantly remind yourself of your major money goals. Find some way to remind yourself of those goals daily in a way that will make you actually think about them. Make a goal review part of your morning coffee routine or have a list of your goals be the lock screen on your cell phone. The key is to make yourself pause and think about your two or three biggest goals at least once or twice each day, so those goals remain front and center in your mind and are more likely to influence your ordinary daily choices.
Lifestyle creep works against all of your financial goals and doesn't bring much personal value in return. Taking a few simple steps to keep it from happening will keep you on the right financial track.
More From US News & World Report
