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What You Need to Know about Lifestyle Inflation and its Impact in Your Life

Will Lipovsky shares his thoughts on lifestyle inflation and how to effectively using a percentage strategy to support wellbeing.

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Lifestyle Inflation and Its Impact in Your LifeBuy that Porsche. Buy that dress. Buy that watch. Buy that house. Get it all! Why? Because lifestyle inflation isn’t the end of the world. You may embrace minimalism for reasons other than money. That is great. The planet needs to be protected and fewer material things can make a person feel better. This type of post is just meant to challenge the notion that lifestyle inflation is always a bad thing.

What most millennials have gone through are two life shocks: 1) Graduating college and kicking hard to get ahead in life (and make new friends); 2) Being tempted by lifestyle inflation

Graduating college and struggling to pay your bills is a relatively contained problem. You signed promissory notes, you find ways to make enough money to repay them. It’s not easy but it is a pretty simple problem. However, lifestyle inflation is ever-present.

Lifestyle inflation affects everything in your life. Some people hate the temptation of lifestyle inflation so much that they change their group of friends, move to a different neighborhood, move to a different city or even move to a different country! After all, aren’t you a little discouraged when your friend is spending a lot more money than you are comfortable spending? Things can get awkward.

If you are very involved in the personal finance blogosphere, you’ll find most personal finance bloggers condemn lifestyle inflation. They say it’s a complete waste of money and should be avoided at all costs (pun). I myself drive the same car I owned in high school. I’ll be 26 in a few months. But I’m not against lifestyle inflation. I just love that car. In fact, I encourage others to embrace lifestyle inflation if they are doing so purposefully.

Purposeful lifestyle inflation is saying you will spend money on travel this year because it is a passion. Or, you will use that expensive AM face wash because it makes you feel rejuvenated.

Undeliberate lifestyle inflation is spending money without even realizing it. You eat out every night without thinking about it. You drive a $30,000 car when you would be perfectly happy with a $5,000 car. That’s dangerous. But purposeful lifestyle inflation… it’s okay. Instead of thinking about the additional money spent, think about percentages.

How to Safely Inflate Your Lifestyle Using the Percentage Strategy

For an illustration, many budget gurus recommend you never spend more than 25% of your take-home pay on housing. For someone making $30,000 per year, that’s $7,500 per year. For someone making $300,000 per year, that’s $75,000 per year. As you see, percentages play a crucial role in determining how much you should spend.

What I’m advocating (and I use this guideline myself) is that you focus on a percentage. Make sure you’re saving a certain percentage of your income. Make sure you’re spending a certain percentage for vacations if you enjoy vacationing. This is wise because it won’t get you into financial trouble, but you can still live a more luxurious lifestyle than you did as a broke college student.

Also, thinking about percentages is powerfully motivating. Want to drive a nicer car? Instead of putting less into your savings account each month choose to make more money! Then how can you possibly feel guilty about lifestyle inflation? Because you wanted a more expensive lifestyle, you went out and got more money. Without the desire for a better lifestyle, that money would have never entered your life.

A while back, I had $16,600 in student loan debt. I’m now past that stage of my life. But lifestyle inflation is on my mind quite a lot. I remind myself that if I stick with a percentage, it’s not a big deal if I spend more money on things.

Buy that Porsche. Buy that dress. Buy that watch. Buy that house. Get it all! Why? Because lifestyle inflation isn’t the end of the world. Keep the percentage in mind. Instead of looking at your vacation as ‘x’ number of dollars, think of it as a percentage. If you really want that trip to Bali, you’ll increase your income until it becomes no larger a burden than a trip to Pizza Hut used to be in college. But by all means, embrace minimalism if you like. I personally haven’t inflated my lifestyle much since college.

To each his own but being mindful is the key!

Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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