Avoiding Lifestyle Inflation

Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.

This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.

When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.

This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.

In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.

Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.

What are some better things we could be doing with the extra income? Here’s where our focus is:

1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.

2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.

I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.

Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.

What are your tips for avoiding lifestyle inflation?

Photos by capetownstore.com and fastcompany.com

20 thoughts on “Avoiding Lifestyle Inflation

  1. Great post Ryan and I admire your sticking to a plan! It’s really tempting, esp when you start making MORE money to SPEND more.. Love this quote too: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

  2. Ugh. I’ve experienced some lifestyle inflation recently. My income has doubled in the past couple of years, and with that, my wants have doubled too.

    • You’re not alone, Daisy! It’s so tempting to increase your wants when you have more money coming in. I try to limit my wants and focus more on the needs category. I’ve found it’s much easier to spend less when your wants are few.

  3. I like how determined you are! I would have caved and bought those pillows. Then again, our pillows are like years old…and we could probably benefit from them. Retirement and loans are #1 though and I think you’re on the right track. I like how you mentioned giving as one of your top items!

  4. My wife and I are pretty simple people. We enjoy a lot of things that are free, and try really hard not to associate happiness with “things”. That said, it still takes a conscious effort. It may be a bit easier for us as a one-income household as well. There is no extra paycheck to spend, lol.

    • Less money, less temptation is one way to look at it. That’s how we operated for a while until my wife started working. It certainly does take an effort, but it pays off significantly when I look at our decreasing loan balances each month.

  5. I find lifestyle inflation very tempting especially now that I don’t have to spend money on rent. I know planning ahead what to do with the extra money is important, or otherwise it will go towards impulse spending. Looks like you’re doing a good job being proactive

    • Having a plan for the extra income is crucial. We sat down and talked out our plan before my wife started working, then I typed it up so we can go back and look at it. I print out a monthly update chart of out debt levels and hang it on the fridge, which serves as a constant reminder of our goal.

  6. We don’t make a ton of money and we haven’t had any big jumps in income but what we usually do is the following:

    -His checks go directly into the checking account to pay bills
    -My checks go directly into the savings account
    -Savings account goes untouched

    I think just sticking to the plan is a good way to avoid lifestyle inflation—however, I do think we should be able to make small concessions without feeling guilty about it. If my guy gets a bonus, we usually save most of it and then spend a portion eating out somewhere.

    • Very good point about making small concessions. I don’t think it’s wise to devote every penny you earn towards bills and debt, because that’s a good way to burn out quickly. Instead, set up side accounts for each partner and put a little money in each month just for fun. It lessens the tension and creates a little independence.

  7. Oh I know all about lifestyle inflation. I had this silly notion that once you get making enough money, you can simply stop worrying about money and freely spend. That mindset was completely ignoring long term finances. So if I wanted something, I’d buy it and we were spending way more than we should’ve.

    I think the key to avoiding it is to have a plan for that money. Don’t let a big sum accumulate in your bank account. Instead be aggressive with putting plenty of that money into debt repayments or investments. If that extra money is always allocated for something there just isn’t the temptation to go and blow it on something needlessly.

    • Yes, considering your long-term financial health is a good move. Looking at each purchase in terms of how it benefits you long-term is a helpful mindset to have.

      Letting money accumulate in a checking account is a good way to blow through everything you earn. I find that automatic transfers into a savings account is the best way to avoid temptation.

  8. I can’t believe how disciplined you are. I would have bought 4 of those pillows and probably one of those watches in the picture above! 🙂 Seriously, you are very smart to keep one paycheck back. My wife and I have done this little by little although we are not quite all the way there yet. I think treating your investments / retirement like a bill helps you to work them into your budget and then avoid the lifestyle inflation. That’s how we keep ours at bay.

    • Thanks, MMD! You and your wife are on the right track – you’re thinking about these things and how they affect your future. Just keep at it and you’ll get there. The REAL challenge is to start living off LESS than one paycheck in a two income family. We won’t be there until our debt is paid off!

  9. I’ve been struggling with this a little lately. I got a second job and planned to put the extra paycheck in savings and about 70% of the time I do, but here lately we have been doing stuff on the weekends and I’ve used my extra money a couple of times. I need to be more disciplined.

    • Don’t beat yourself up, Katie. We could have the best-laid plans in the world, but then life comes along and messes them up. It’s great that you’ve found a second job and are bringing in more income. That’s a feat in and of itself, since many people can’t even find ONE job. I recommend setting up a savings account and transferring your earnings from the second job into it automatically. If you don’t see it there’s no chance to spend it.

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