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Is Lifestyle Inflation Unavoidable?

by retirebyforty on October 5, 2011 · 54 comments

in early retirement, expenditure

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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.

lifestyle inflation chart

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.

 

 

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{ 42 comments… read them below or add one }

cashflowmantra October 5, 2011 at 12:35 am

I must say that I am pretty content with my lifestyle at this point so it is simply a matter of replacing what gets broken. I will take a vacation now and then and have some expenses coming up with education for children, but I really don’t need or want any major things. I may get a new softball bat next spring.

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retirebyforty October 5, 2011 at 1:07 pm

I’m about at the same point as well. It’s great to feel contentment. Of course, I want a new iPad and all that fun stuff, but they are not a must have anymroe.

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Little House October 5, 2011 at 6:48 am

A couple of years ago, we were making more money and it definitely increased the cost of our lifestyle. Now, we’ve leveled out, but since we are still renters (and live in a very expensive part of the country) our rent eats up about half of our expenses. (not good, I know.) At this point, I’m hoping to “down size” in the near future. If I can find a city that costs less and has teaching jobs, I think I could reduce our expenses by about $1,000 a month. That’s my goal at least. ;) Oh, and we’re on a mission to pay off our one car, that will also reduce our expenses. And if I can find a really bike friendly city, I’ll ride all the time! (well, maybe.)

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retirebyforty October 5, 2011 at 1:09 pm

That sounds like a plan. Good luck with the job and city search! :)

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MoneyCone October 5, 2011 at 6:53 am

I’m in the same boat as CFM! I still shop around and obsess before buying gadgets, always did whether it put a major dent in my savings or… not!

I wanted fancy stuff when I couldn’t afford it. Now that I can (at least some of it!), I’m content with the feeling that I can afford them, but I really don’t need them!

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retirebyforty October 5, 2011 at 1:11 pm

I try to avoid gadget shopping because I would want to buy it if I shop and research. :)
I can afford a few fancy stuff, but if I avoid the temptation then usually I can avoid spending extra money.

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Roshawn @ Watson Inc October 6, 2011 at 8:57 pm

@moneycone

I know where you are coming from. I typically will research things too. I can certainly appreciate that there IS satisfaction in knowing that I could have what I want regardless of whether I buy it. It’s not necessarily intuitive to me why that happens, but it does.

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Jeff @ Sustainable life blog October 5, 2011 at 7:55 am

I think that it’s not totally unavoidable, but it is really difficult to get a handle on. Now that I’ve got a steady job, I seem to travel a lot more than I used to – at greater expense, and in stay in nicer places/do more costly things.
I’m a bit the same as MC – in college I wanted a lot of fancy things, usually for the brnad name. Now, I know that I dont need those things.

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retirebyforty October 5, 2011 at 1:12 pm

It’s fun to travel and spend money right? I’m not big on brand name either.

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MoneyforCollegePro October 5, 2011 at 10:30 am

Lifestyle inflation for us took a big jump after my wife and I both graduated from college. After that, it has been very steady. Extra income (raises, side business) has gone into savings or investing. I think ours will spike whenever we have kids, but not above anything we can easily fit into our budget, while still maintaining our saving goals.

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Matt @ Financial Excellence October 5, 2011 at 10:54 am

We were guilty of lifestyle inflation until we realized what was happening. Now we’re content with what we have and we know that income increases will inflate lifestyle to a certain point but we control it so we can invest more for the future.

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Julie October 5, 2011 at 11:24 am

Of course the more you have the more you spend. My spending definitely increased as I got older, but now I am trying to back it up and little by cutting back and couponing like crazy!

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Kellen October 5, 2011 at 1:10 pm

I’m in a period of huge lifestyle inflation – kind of. Honestly, I think I eat out less now and go to fewer “entertainment” activities than I did in college, but I spend more on work clothes and my student loan payments.
I managed to find rent in the city that was lower than my rent in my college town, but when I move out at the end of this year, I’m probably eventually going to end up in a trendier part of town that will cost over twice as much. After that move, I hope the lifestyle inflation will stop for awhile!

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retirebyforty October 6, 2011 at 9:19 am

I almost forgot what’s it like. :) Thanks for the reminder. It’s impossible to avoid inflation when you are starting out, but like many comments said – it’s easier once you are more settled. You probably have at least a few more years of inflation left. Good luck! :)

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Lindy Mint October 5, 2011 at 2:11 pm

I like your scientific chart!

I think ours would have a lot of peaks, followed by slow trickles back down. In the society we live in it’s easy to get caught up in the hype of wanting to spend more when you make more. The hope is that we all eventually come back to our senses, some sooner than others.

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retirebyforty October 6, 2011 at 9:20 am

Thanks! I think we steadily climbed and is about at the peak now with baby RB40…. (I guess he’ll be more expensive when he’s older, but we’ll see.) Hopefully we can cut back in other area to compensate.

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BooKoo Bucks October 5, 2011 at 4:05 pm

I have had a steady job for the last 4 years, after spending some time after college pretty flat broke. I’ve paid off my student loans, moved to an apartment with my fiancee, and have kept our expenses much lower than most of my coworkers’ seem to be. For a while I was footing the rent bill alone while she looked for a job, but my own expenses have gone down now that we’re a two-income household. The extra money goes into savings (emergency, wedding, and grad school funds), mostly; I also donate more cash (and a little less time) now that I have the ability. Got a 4% raise that will be reflected in my next paycheck — I’ve already arranged for it to fund my IRA. Hopefully I’m somewhere between the red and green lines at my current age of 27.

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retirebyforty October 6, 2011 at 9:21 am

Sounds like you have a great plan. Keep it up! I hope you are contributing to 401k as well.

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BooKoo Bucks October 6, 2011 at 10:14 am

4% to the 401(k) now (no employer match, boo!); more in a couple of years after I’m married and have my master’s with no debt.

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krantcents October 5, 2011 at 4:39 pm

I find it much easier to hold the line because I downsized and my children are grown. We are at a point when you replace cars, remodel a home or move to a single level home. The difference is I can afford a nice car or bigger home, but I don’t need it.

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retirebyforty October 6, 2011 at 9:22 am

I think you are in a great situation and are an exception to this lifestyle inflation rule, a great role model!

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My University Money October 5, 2011 at 8:17 pm

As someone recently out of school, the immediate lifestyle inflation of my fellow graduate friends has made me both envious and sad. Like you, I sometimes am a little jealous of their luxuries, but I quickly compare the enjoyment I would get from “stuff” to an early retirement, and it makes the decision fairly easy again. Yay for delayed gratification!

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retirebyforty October 6, 2011 at 9:23 am

That’s great to hear. Most recently graduate spends their whole paycheck every month and it become a habit. Good luck with early retirement! :)

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YourFinancesSimplified October 5, 2011 at 11:55 pm

I think life style inflation is un avoidable for the average american until a person reaches their 30′s. Frankly, the average person don’t have the means until their late 20′s, then you settle down to what your life will be. I

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retirebyforty October 6, 2011 at 9:25 am

Many people keep up with lifestyle inflation even beyond their 30s though. It’s difficult to hold the line when you are in the habit.

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101 Centavos October 6, 2011 at 2:50 am

Just wait until Baby RB40 starts competitive soccer. You might be bleeding green from all pockets.

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retirebyforty October 6, 2011 at 9:26 am

urghh…. Soccer in other countries cost nothing, just the ball. It’s ridiculous to be spending so much money on soccer.

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Financial Samurai October 6, 2011 at 7:03 am

It’s unavoidable man. Just make more though!

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retirebyforty October 6, 2011 at 9:27 am

That’s one of the problem. People make more and they keep spending more! right? :)

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youngandthrifty October 6, 2011 at 5:33 pm

I like your chart LOL and your claim that it is unscientific.

I think it’s unavoidable esp if you have kids or want to move into a bigger home…

What worries me is yes, you’ve paid off the mortgage, but then you’ll need to move into a bigger place probably for your kids, so then the mortgage just never finishes…

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Crystal @ Public Liability Insurance October 7, 2011 at 9:19 pm

It’s not unavoidable but I also don’t think it needs to be avoided if you keep making more. :-)

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Everyday Tips October 10, 2011 at 4:22 pm

Each child we had made our expenses go up dramatically once they hit school age. When the kids are all done with college though, our graph will go in the opposite direction.

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retirebyforty October 10, 2011 at 10:08 pm

Ughh… I don’t want to hear that, but I guess I already knew it….

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Evan October 12, 2011 at 8:44 am

To an extent lifestyle inflation (or the ability to inflate lifestyle rather) is a good motivator…its just when it gets out of hand that one loses control.

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First Gen American October 19, 2011 at 2:09 pm

I’d say we stayed relatively flat til we bought our house and then again got bumped with the kids. You’re still a relatively new parent and the sticker shock of paying for daycare takes a while to absorb. Even though I did the math, it didn’t really sink in until my checkbook got anemic at the end of every month. It’s been 6 years since the first child was born and I’m now starting to feel a little breathing room again now that some of the daycare costs are lower because of school.

You’ll get there.

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retirebyforty October 19, 2011 at 9:37 pm

Yes, I am hating the daycare payment right now. We’re done with one kid so hopefully we’ll have a lull around in 5 years or so… :)

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je ne sais quoi October 20, 2011 at 8:40 am

Interesting paradigm for a new perspective on my financial life and its progression — thanks! I inflated a lot upon entering the work world, and used credit cards to excess in my 20s and 30s believing that my future self would always earn enough to cover my debts. Then I had to grow up. I simplified my lifestyle and think I’m on course with the red line on your graph.

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Brittany October 20, 2011 at 5:24 pm

I’m aiming for something closer to the green line. My goal is to inflate my lifestyle while maintaining or lowering my spending-to-savings ratio. When I was Americorps, I was about about a 65-35 spending-to-savings ratio. When I got a new job that over doubled my salary, I went to a 50-50 ratio. I’d like to maintain that ratio as long as possible (probably will have to be adjusted with major life changes, like marriage or kids). If I get more large raises as opposed to small, steady ones (probably not likely, unless I leave the non-profit sector for the private one), I’d go lower with the ratio, but otherwise I am content with reasonable lifestyle inflation.

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retirebyforty October 21, 2011 at 10:03 am

I think your 50-50 spending to saving ration is really great. Not many people can save that much. Hopefully you can continue doing it, great job!

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Marcelina November 14, 2013 at 10:12 pm

Unfortunately, some lifestyle inflation is inevitable. Paying for childcare has significantly increased my monthly expenses, for example. And real estate is very expensive where I live (so mortgages are high) even though I live in a small condo.

By the way, I drove a Cressida too. It was an ’86. Leather seats!

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retirebyforty November 14, 2013 at 10:17 pm

You’re right. Childcare is so expensive where we live.

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kammi December 11, 2013 at 7:12 am

I don’t really desire anything much, since I’m still in my 20s and I guess I grew up in a household where we had money, but my parents didn’t care for material things (we instead spent it on things like books or family travelling). I personally don’t care for material things at all; I don’t own a television or a car or any of that and it doesn’t phase me, as long as I have my access to internet and books for learning. It was so bad that when my dad visited me in LA, he actually offered to buy a better mattress and a fridge (yes, I was living for months without a fridge and it didn’t really seem to bother me; one time I lived on two dollars all week without a fridge). I guess I’m a miser? I will say though, that when I am sick, it is challenging to avoid spending a bit more on food and ‘comfort’ because you are so low on energy and just want the fastest solution so you can rest and feel better. That can add up over time.

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