I truly believe the most important factor of early retirement is the ability to save a large percentage of your income early on. To do this, we need to keep lifestyle inflation down to a minimum. Just think back to when you first graduated from college. You didn’t need to spend a lot of money and life was good. As we get older, we take on mortgages, new car payments, and have children. Life inevitably becomes more expensive. Most families spend all their income because they are caught up in the consumerism lifestyle. As they make more money, they also spend more money and don’t save enough. Lifestyle inflation is the enemy of financial freedom, but it is inevitable.
*Originally written in 2013. Updated 2022.
Unfortunately, there are more things to spend money on every day. It seems every year, more things become a necessity. Family situations change and we need to accommodate life. I have been keeping track of our cash flow over the past 11 years and I see our expenses creeping up. In 2011, I budgeted $4,000 per month for expenses. We spent more when RB40Jr was young. That was due to child care expenses. But our spending has dropped to about $4,000/month again. That’s pretty amazing. Let go over our budget quickly.
Preschool +$300/m
I became a stay at home dad when I quit my engineering career and I eliminated the childcare expense from our budget. At the time, I thought he’d stay home until he starts kindergarten. It didn’t work out that way though. I need more time to work on my blog and he needs to learn to socialize with kids his age. We just started preschool in November and we need to include this cost into our budget. Actually, 300 bucks is a small price to pay for sanity.
2022 update – Our son goes to public school and we no longer have any childcare related expenses. Yes!
Gym membership +$27 and childcare +$20
When I was working, I went to the company gym at lunch almost every day. I tried to work out more at home or at the playground when I became a SAHD, but it just didn’t work. I gained 5 lbs over the last 18 months and became much more rotund. Now that RB40 Jr. is more mature, he can hang out at the gym childcare center while I workout. It’s really nice to get back in the gym again, but it is an additional cost.
2022 update – Unfortunately, I gave up going to the gym. I workout at home instead. My track record is spotty… Updated gym expense is $0/m.
Life insurance +$24
I had life insurance with my old employer before I retired. After I left, I had to get my own policy. I think everyone should get their own life insurance instead of going through their employer. When you’re young, you can get a life insurance policy for a low premium. If you wait until you leave your job, then it will most likely be more expensive to get a policy.
2022 update – I still have this life insurance and the payment is still $24/m. I probably can get a better policy now.
Smart phone +$21
I just got a smart phone through Republic Wireless in 2013. Previously, I used Tracfone just for voice calling and texting which cost about $20 every 3 months. Now, I need to be able to check email and Retire By 40 when I’m out and about.
2022 Update – We still use Republic Wireless because I get a big discount every month. We spend about $20/month on our cellphone. Amazingly, this expense hasn’t gone up for 9 years.
Grocery inflation +10-20%
The government said inflation is 1% in 2013, but groceries seem to have gone up much more than that. We will also try to eat more organic fruits and vegetables next year and that will increase the cost even more.
*2022 Update – Grocery prices got hit by inflation in 2020 and 2021. These days, we spend about $500/month on groceries. We purchase things when they are on sale to minimize this expense.
More Driving +$40
When I first became a stay at home dad, we only drove about once per week. Now I’m driving almost every day. On the weekdays, we either drive to preschool or the gym. I guess I should get used to it because it seems every parent is always driving their kids around to their soccer games, martial arts classes, or birthday parties. All this driving around cost about an extra tank of gas per month.
*2022 Update – I drive RB40Jr to school in the morning and he takes the bus home in the afternoon. Usually, I fill up about once per monht. Gas price has gone up a lot since 2013, though.
More Travel +?
Now that RB40 Jr. is able to fly with minimal fuss, we will be able to travel more. We went to visit family in California 3 times this year. Next year, we plan to take a trip to Hawaii or Mexico. Travel hacking will help lower the cost, but it will still cost more than just vacationing within driving distance. In a couple of years, we’ll head off to Thailand and other international destinations so that will cost even more. It will be a lot of fun to travel with the kid, so I’m looking forward to it.
Are these lifestyle inflation costs unreasonable? I don’t think so. We are not buying more luxury items or spending money willy nilly. I will increase our monthly expense budget from $4,000 to $4,500. Luckily, our income also kept pace with the increase during that period. It’s mostly due to the higher than expected online income so I need to keep improving my blogs. I’ll increase our income budget from $5,000 to $6,000/month as well. I’m also hopeful that 2014 will mean higher income from our rental properties, so our passive income will also increase.
*2022 Update – We spent around $40,000 in 2021. That’s really low! I think that’s partly related to Covid. We’re more conservative and didn’t spend much on travel. I guess we’ll have to wait and see how it goes this year.
Inflation is inevitable so we need to make sure our income also keeps pace. When you retire, you need to have a plan to increase your income every year.
What about you? Have you been able to control your lifestyle inflation?
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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Hi,
I think you are doing great. I actually am always looking for ideas to cut back on my expenses. When I was a student I survived on a very frugal budget and since I have graduated and started working, I saved up enough to invest in a rental house while living cheaply close to my workplace in a boarder situation and have actually managed to cut about $40 off the budget despite inflation. I also have kept in touch with people I used to do odd jobs for like cleaning and babysitting and work for them on weekends to earn the extra amount to help pay student loan ASAP. your blogs have actually helped me a lot. thanks
It’s great that you’re able to invest in real estate. The side income is good too. Good luck in 2014!
SOME lifestyle inflation may be inevitable, but it becomes very easy to continue to justify all the little things that really start adding up. Unless you truly feel that you’ve been living so tightly that you “deserve” some upgrade, these changes/additions to your budget need to be a big deal each time you add one in. As long as your income is increasing faster than your outflows, you can have some creep without hurting your long term performance too much. But remember, every single dollar you spend is one which will not be invested or compounded, and has a measurable impact on future results.
This all comes from someone who worked hard, lived very cheaply, and retired at 48, so it is absolutely possible!
I am agonizing over all the little increases. It’s painful to spend more money and I don’t like it.
Hopefully, the increased budget will hold for at least 2 years. It’s hard when you factor a kid in there.
Thanks for your input, it was very helpful.
I was most definitely living a student lifestyle awhile ago (2 years ago or so), so when I graduated and I had the money I used to spend on tuition to spend on other things, I definitely went through lifestyle inflation. I couldn’t have continued living like I was, so some was definitely inevitable, but it was probably a bit extreme.
Joe,
I hear you. My lifestyle has also inflated more than I would have liked this year. I now have a car, which wasn’t originally in the cards. I planned on living car-free and carefree for many more years, but my employer is moving to a part of town that would make this nigh impossible. But at least I scored the Mother of All Car Deals! 🙂
I also have health insurance now. It’s worth the price as I keep my assets mostly safe in the case of a medical emergency, but it’s still an expense I have now that I didn’t use to.
Sounds like you’re doing a great job increasing income at a more rapid pace than expenses, so you’re in excellent shape. 🙂
Best wishes!
I’m jealous of your MACD. 🙂 It’s tough to be cheap because it seems more things become a necessity every year.
Joe,
Kids definitely have an impact on expenses. But I have noticed that my other spending has been reduced drastically since having kids. Namely, going out to eat on dates with my wife, and having drinks. I miss having a few beers at the bar for happy hour. I get to every once in a while, but not nearly as much as I did prior to kids. Some lifestyle inflation is offset. I also quit the gym due to lack of time. But will be picking up pre-school expenses next year.
-RBD
That’s true. I would like to go out on dates with Mrs. RB40 again at some point.
I hope the kid expense is somewhat stable now. He’ll have more expenses as he get older, but the preschool cost should go away in a couple of years too.
After college we cut it so close to the bone that I lost my ability to digest meat. I would not want to go back to that. Time is also much more valuable than it was back then, so I can’t make time-consuming substitutes for expenses.
I like not having to worry about money. I like being able to buy anything I want at the grocery store without thinking about it.
But we save a lot (and give a lot) and we have a high net worth, so I think it’s ok. Maybe by the time we have to cut down to one income again we’ll be making enough from passive investments that we don’t have to cut back consumption. Who knows.
Ouch… You’re right about time. Life is so busy now.
I guess my definition is a bit different than yours because I would’t call most of the stuff you mentioned lifestyle inflation. Kids bring new expenses into anyone’s life but you are managing those quite well. Lifestyle inflation would be trading your Mazda (I think?) for a brand new leased Benz GL or something along those lines i.e. using kids as an excuse to inflate your current lifestyle.
Kids are a huge lifestyle inflation. 🙂
It seems like we are constantly battling lifestyle inflation. We still max our retirement savings, plus put money into taxable savings, but we spent more this year on “nice-to-haves,” rather than “need to haves,” which we also spend money on. I sit down with my wife every few months to go over our budget. I suppose it’s time for another sit-down.
We have been pretty good this year because it’s a transition year. We’ll probably spend a bit more next year on nice to haves. 🙂
As long as it’s reasonable, I think it’s fine.
This has been the first real year I’ve clamped down on my spending and expenses so I don’t have any prior years to compare to. It will be an interesting part of the budget to watch and keep track of over the years. I hope to try and keep the expenses down and maintain a consistent spending but that is hard to do. Renting is something that is hard to keep low as the only way to lower a monthly rent is to move. Which brings it’s own set of costs for the year.
Good luck. You’re right about rent. It’s been going up lately.
Our ability to steadfastly resist lifestyle inflation is the #1 reason I am staring ER in the face right now at 42.
Our lifestyle over the past dozen years or so hasn’t really changed one iota as our income (salaries and dividends) has increased. We are so fortunate to be pulling in about 12k monthly right now – deep down we know we could pretty much not only keep up with the Joneses’ with this income, but probably kick their butts. Instead, we live our great little lifestyle that we love on about $2500 every month. So we are saving about 9k or more every freakin’ MONTH.
When we see similar couples as ourselves in their monster homes (monster mortgages too), driveways full of Audi SUV’s etc, yet obviously still stressed about having cash at the end of the month, I feel very good about the path we are on.
There is no way my wife and I intend to squander the income we have worked hard to achieve by buying useless, depreciating crap that so many seem to do.
great job! You have so much more choices than the Jones.
People just don’t understand the alternative to spending all their income.
Oh, and to answer your question, for some reason I’ve been able to control lifestyle inflation for 8.5 years. It started after I stretched to buy my primary residence. Got used to a tighter budget and haven’t left it since.
That’s some pretty sparse living Joe! I don’t see one thing in the lost that would be considered Lifestyle inflation in my book.
Live it up a little man!
We’ll travel more next year! 🙂
Since you asked,my salary will go up every 2 years or so and even more if I finish an on the job study of 2 years.
The way Ive structured my savings is to start right off the bat with an 80% savings rate.
Im still 27 so im a few years off for trying for a baby.When my salary goes up automatically my savings rate goes down since I will stay saving the same amount.It’ll settle around a 70% savings rate,still noteworthy.
All increases in salary will be either for a baby’s needs or for my own increased lifestyle inflation if I choose to have it.I think this works better,since the savings are forced.
Im actually more afraid of Hedonic adaption,which is why im called cheap quite often for i.e. taking the bus,using wifi wherever available instead of postpaid,etc.
However Im up for the challenge.
80% saving rate is great!
Not many people can do that.
This is a good reminder on why you need to overshoot your passive income targets — life changes and new expenses (that were unaccounted for initially) can creep up at anytime.
Also, having assets that hedge against inflation is absolutely necessary. With rentals, if my own expenses shoot up, I can pass them on to tenants… One of the reasons why I love having 30 year fixed mortgages. Nice to know at least one thing won’t be changing…
Rentals are nice because you can increase rent. The mortgage doesn’t change, but it seems like everything else keep increasing though. Property tax, repair cost, etc…
I think some level of lifestyle inflation is ok. You can still retire early with moderate lifestyle inflation. The trick is to only increase your lifestyle by an amount smaller than your raise. Or less than the amount by which your portfolio increases in value (if living off investments).
That way, you’re banking your raises and increasing your savings rate each year.
I know we aren’t living like we did when we graduated college. Vacations are nicer. Gifts are more generous. Food is way better.
Right. Reinvesting your passive income is essential.
I really don’t think that life insurance is what I’d consider lifestyle inflation. Most people should have life insurance if they have dependents. I don’t think thats just luxury / optional spending but it serves a valid financial purpose.
Yeah, but it’s still an additional cost. I never like paying for insurance, it feels like such a waste…
Great article Joe, I agree as well. Yes and in the future soccer lessons will cost you more dollars. I see things as, if something is added to the budget, maybe you can cut or elminate another, if you cannot increase income. For example many people cut savings from the budget, which is a mistake but sometimes a necessity when a budget is tight.
Ugh… Yeah, we’ll have more lessons and equipment cost the future. When I was a kid, we’re just happy to have a ball. Organize sports is such ….
You could look back to the days when I am sure you had a $100 dollar cell phone bill and to the days when you cut cable, but didn’t have the cheaper options of netflix, redbox, and Hulu. There are inflations that are unavoidable and there are also freedoms we get through technology to counter some of those inflationary items, if not all.
That’s true about technologies giving us more options.
As we take on adult responsibilities and obligations, some lifestyle inflation I think is indeed inevitable. The proliferation of necessary computers and often less-than-necessary electronic gadgets I think has also made life far more costly than, say, 30 years ago. But a big component of lifestyle inflation for many–‘conspicuous consumption’–is totally unnecessary and self-imposed. Many aim to get the most impressive house, most expensive car, etc. that they can possibly afford, including maxing out their credit. That’s when people get into trouble and don’t save enough.
Joe, I think those last two bolded words in your first sentence are the key, so lifestyle inflation that is “slow” is fine. Because of the power of compounding, if you get your early years right, you can probably live it up paycheck to paycheck a few years pre-retirement with no problem. Or you can choose an early exit from working for wages. Stashing big during your early years is the trick.
I guess my answer to your question is “not really”. I’ve held onto the same living standard since I graduated 25 years ago so I haven’t seen any inflation at all, and this I realize is not a good thing. Over the years I think I’ve figured out why, most people have an “S-shaped” utility vs cost curve but mine happens to look like a step function. So while most people could improve their lives significantly by spending more, I can’t. That’s also the reason I’ve never budgeted, while most people would be able to trim expenses in response to setbacks, I can’t do that either. Fortunately I’ve had steady wages all this time so my accumulated savings spares me the anxiety that creeps into the lives of middle-aged tech workers. So I guess the only thing that is inflating is my peace of mind.
Wait until your son is a teenager and brings his friends home to eat. My food bill is so high when both sons are home from university that I have been shopping the sales for the last few weeks to get stocked up.
This is an interesting concept, Joe. Obviously basic inflation is inevitable, but I wonder if the inflation-adjusted costs must inevitably rise, too. I think the costs you’ve noted are entirely reasonable. But there’s a part of me hoping that our true, inflation-adjusted costs will stay flat (or decrease) as we move through life.
Of course, this comes from a pretty naive and childless blogger, so take that for what it’s worth. 🙂
I wouldn’t consider this lifestyle inflation. We’re expecting a child and it drove our costs up quite a bit. It’s not a fancy car or jewelry, it’s a family member we’re happy to be have. As long as you’re not splurging on all kinds of useless stuff, I don’t see it as a lifestyle inflation, it’s just another lifestyle based on the new challenges you face 😉
It’s really not inflation with regards to the kids. Most classic retirement scenarios are when the kids are grown, whereas yours is still a youngster
I agree with most people that the increases you have are very reasonable. If you did want to cut down again, are there other areas of your budget you could lower?
I wish I only paid $300 a month for daycare, but my daughter probably attends her school a bit more than your son. (24 hours a week).
I wouldn’t consider this lifestyle inflation – just lifestyle changes. If you were buying luxury items, that might be different, or if you weren’t being frugal in your spending decisions (like going with a smartphone plan with AT&T instead of Republic Wireless, for example). A lot of your new expenses seem to be associated with having a kid, and bottom line, kids cost money!
Agreed. The biggest thing is maintaining a semblance of control over the inflation, which, in your case, you have.
The biggest two for me have been food and travel.
I like better, healthier, organic food which comes at a price.
Traveling wise, I am not a hostel fan like when I was 21 so hotels and “comfort” tend to play a role in vacation inflation.
The Warrior
NetWorthWarrior.com
Our lifestyle inflation is similar. Healthy groceries usually cost more and I’m fine with that added expense. I personally think that the gym membership is worth it if you use it….that’s an investment!
Great job Joe. Very impressive how your blog income has increased over a short period of time and your expenses are still fairly low, considering you have a family.
My wife and I started our retirement at age 57 with a newly built dream house on three acres with a budget of $7000 a month. (Way over our sustainable income.) We sold it ten years ago to gain freedom and travel/work overseas. Now as full time RVers in the USA, our monthly budget is $2200 a month. Amazing! But…my wife misses our community in Eugene so we will begin a search for a condo this summer. I figure that we can live comfortably on $3000 a month with the condo as the major expense (about $1000 a month). Ideally, $4000 a month would cover our future expenses which includes bike touring and hiking trips to Europe upon occasion.
Now a few years from age 80, food costs (on the RVing budget) are still the largest item in at around $500 a month. The good thing about groceries is that there are ways of cutting costs if necessary. We prefer organic veggies as well which keeps the costs a bit higher than planned. We still make up our extra expenses periodically by working seasonally. This year we are at an Amazon Warehouse which will bring in $12,000. Most workampers are in the age 50-60 category and a few, like us, are in their 70’s and 80’s. The 12 week work experience at Amazon really, really reminds me of why I retired! We love our freedom!
That doesn’t sound so bad Joe. As your life situations have changed, so have your needs. Plus, it’s not like you have any gold plated costs listed there. It’s all about what you need, and if you need those things…..no big deal. My wife and I are always cutting costs and reassessing how they affect our lifestyle. Dropping cable was easy……..but going to one car looked painful to her…..so we kept both. At least you’re intentional about your expenses. Few people are, at least in my experience
-Bryan
Some lifestyle inflation is inevitable, but at least you are not overpaying! Your cellphone bill is one of the lowest I know of!
I kind of agree and disagree at the same time.
I agree that inflation will happen, this is inevitable. And obviously you need to keep your salary up with that, but it’s only 2-3% per year which shouldn’t be too hard even in retirement with passive income.
Having a kid isn’t really lifestyle inflation, it’s a completely new paradigm – it’s a life changing event (as you know better than I!)
You can obviously choose to spend as little or as much as you wish on your kids, I’ve been reading plenty of other blogs who are saying they cost next to nothing. So I still think there is a danger of real lifestyle inflation when you have kids, as you may be tempted to buy them things they don’t really need (or even want in the case of the really young ones).
I can’t really comment with too much opinion as not in that boat yet… ask me again in 5 years and I will let you know! 🙂
I disagree that groceries have gone up that much but I am in a different country to you so maybe it’s different over here! I am spending less than ever on groceries this year.
Cell phone costs are fine with me especially if it’s for your job/blog.
I would try to cut out the driving purely for environmental reasons, but I am not exactly perfect on this one either so shouldn’t really be throwing stones from glass houses. Apart from that it all looks gravy!
Joe, I believe you’re doing a great job on early retirement expenses. I also believe that it’s the engineering education that helps provide the disciplines for FI. For example, most of my engineering colleagues had simple flip phone Tracphones. The move to RW I consider as an engineering financial analysis to move to smartphones.
The same can be said for automobiles. My engineering colleagues all had well aged used cars while in college and we all worked on our own cars. That trend also continues to this day for us. Although, there is a lot of car inflation…power steering, power brakes, power windows, e/c, sound systems, traction control, direct injection, 10 air bags, etc. that wasn’t all standard equipment on our first cars.
I’m not sure about the engineering education. I think most engineers are the logical type so we usually don’t spend too much money on frivolous things. For us, a car is just for getting from point A to point B. 🙂
I know several engineers who spend a lot of money on cars. I do think engineering is more practical by nature so a lot of folks tend to be frugal and not go for luxury cars, but thats not always the case.
I cut off my gym membership last year because I think it’s not very important at all. I just bought some affordable equipments like dumbbells and jumping rope.
I tried that, but it didn’t work. I couldn’t work out on my own. 🙁
Honestly, I wouldn’t even consider a cell phone or gym membership to be life inflation. These are expenses that you can easily argue are apart of life.
Sure, you don’t need to work out. You can train at home or at the park.
You could live without a cell phone.
However, it’s not the end of the world.
It’s definitely lifestyle inflation. It’s a luxury that we can live without, but it’s just so convenient. It’s like a washing machine and TV for our parent’s generation.