I think the biggest enemy of saving is lifestyle inflation. My expenses were around $1,200/month when I started working years ago. I paid around $500 for a one bedroom apartment, drove a beat up Toyota Cressida, went out to movies once in a while, and ate out at
fast food moderately priced restaurants. Now our monthly expenses are pushing $4,000 per month. Is lifestyle inflation unavoidable?
If you have a good job that pays well then lifestyle inflation is almost unavoidable. You need to spend money on work clothes, commuting, meals, daycare, and many others. Most of us have gone through the poor student phase and when we have a nice fat paycheck, we want to reward ourselves. I think that’s perfectly acceptable …. up to a point.
Living like a college student is not a lot of fun unless you are a college student. Once I had a steady paycheck for a few years, I purchased a new vehicle and spent more money on housing and entertainment (ski trips to Whistler, international travel, wine). Lifestyle inflation rose steadily over a 10 year period and it stabilized after that. I’m quite content with our somewhat frugal lifestyle at the moment and hope to avoid any further lifestyle inflation from this point on.
Here is a little chart I made to illustrate my point.
This chart is completely unscientific. I made it up. The X axis is age and the Y axis is really arbitrary. For simplicity, we can say it represents monthly expenses.
The blue line is what I imagine a typical American white collar family’s lifestyle inflation would look like. Every year, the bread winners work harder, get raises, and then increase spending. The vehicle escalates from a beat up Hyundai to a Toyota Camry to a new BMW 535i. Housing also gets the constant upgrade treatment and a nice McMansion is many people’s goals. Once they retire, then they will cut back on expenditures due to less income. That sharp drop is the year of retirement. I believe most families think this is normal and believe it is a good thing to increase expenditures every year. After all, life is quite a bit nicer when you spend money.
The red line is what I’m trying to achieve. We were a DINK family for many years and enjoy a comfortable lifestyle. Now we are trying hard to control our lifestyle inflation. The goal is to stop lifestyle inflation in our late 30s/early 40s. I am a little jealous of my friends and coworkers with McMansions and BMW M5, but not enough to want to spend a lot of money keeping up with them.
The green line would be nice too. If you can slow the rate of lifestyle inflation from your early 20s, then your expenditures will look much better than the average North American family.
What do you think? Assuming you have a nice income, what would your lifestyle inflation graph look like? I can add another line if you give me a good example.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.