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Avoiding lifestyle inflation is hands down one of the biggest challenges on your way to achieving FIRE. Lifestyle inflation or lifestyle creep is when your spending increases as your income increases. A common example for most people would be they receive a raise at work and immediately start “upgrading” their life, new house, a new car or buying fancier clothes.
Lifestyle inflation can be tempting. Especially if you are a reluctant frugalist like myself, I tend to enjoy fancy things. Back in college, I made some financial mistakes. I bought a large screen tv on credit because I “had to have it†and to look cool to my friends.
Another time later in college, I wanted a Louis Vuitton belt which based on my research retails for $635. Bought more jewelry, more Louis V my momma couldn’t get through to me” – Kanye West.
Luckily, I did not purchase said belt.
So, let’s say I’ve come a long way in terms of being more frugal and avoiding the creep of lifestyle inflation.
Lifestyle inflation will derail you on your path to FIRE, stay far far away, it’s a trap.
Avoiding Lifestyle Inflation, Changing My Ways
Avoiding lifestyle inflation became very important when I first moved to Austin. I received a substantial raise and was moving to a vibrant new city with my brother and couldn’t be more excited. It would have been easy to get caught up in the rat race and spend that increased income on material, frivolous things. But, thankfully, I had just found the FIRE movement and avoiding lifestyle inflation was my top priority.
The big three for personal finance are housing, transportation, and food. According to the Bureau of Labor Statistics for the year 2017, the average American household made $73,573 and spent $60,060. The big three accounted for $37,189 or 62% of total spending!
Instead of upgrading my lifestyle in these areas, I found ways to optimize.
Housing
According to the data above from the BLS, on average, housing accounts for 33% of annual expenditures. I could have easily paid more for an apartment right downtown for a ridiculous price, but instead opted for one just south of downtown for 1/2 to 2/3 the price of a downtown apartment. I also chose to live with a roommate, my brother, because it saved money and it was more fun! Making these decisions, I was able to lower my housing costs down to 22% of total expenses. The apartment was still in an excellent location for young professionals and had all the benefits but was cheaper.
Car
Another thing I could have easily done was to upgrade my car. I was still rocking a 2011 Ford Fusion SEL, which I had proudly just paid off. With my car being paid off, I was able to use that additional money to ramp up my savings. However, that’s not to say there wasn’t the temptation to upgrade my car. I frequently looked at Auto Trader for new cars, maybe a Lexus IS250 those are pretty slick, or hey I’m saving a bit on the apartment, why not splurge even more. Could I lease a Tesla Model S for a cool $979 a month? Luckily, I never gave in to the temptation and kept my transportation expenses around ~6% of total expenditures vs. the average of 16%.
I used to get so caught up in daydreaming about how cool it would be and how happy I would be with some new purchase. But, I very quickly realized that purchasing new things brought me no increase in happiness. The time when I was buying the most “things” was the time in my life when I was most unhappy.
Food
I usually try to cook most of my meals at home to save money! Often I would buy in bulk to save money, shopping at Costco. I would prepare a bunch of food for the week, do some meal prepping then have healthy meals ready to go either in the fridge or freezer. Most often, I try to eat Paleo or Whole30.
But, sometimes I would give in to the temptation and enjoy some delicious Texas BBQ or Torchy’s Tacos! Honestly, food continues to be a problem spending area for me. I just really love food. The average US food expenditure is around 13% of total expenses, and I am usually right around that level or even a bit higher. But, as Ramit Sethi says, “Spend extravagantly on the things you love, as long as you cut costs mercilessly on the things you don’t.”
Why Not Splurge On The Big 3?
Good question, here’s a list of things I decided I wanted more than a luxury downtown apartment, a new car, or any other material thing.
- Time freedom
- To learn new skills
- Meet awesome like-minded people
- Work on personal development
- To travel the world
- Location freedom
- Freedom from Financial Worries
- Being able to do what I want, when I want and with whom I want all day every day
Time is your most valuable asset.
I decided all of the things above were much more important than any material item.
Tips for Avoiding Lifestyle Inflation
Heres a few tips I have for avoiding lifestyle inflation.
Big Purchases
Whenever I catch myself daydreaming of buying a new big purchase item, I force myself to do the math of- “ok how much time could I live in Thailand for with that amount of money”? I then daydream about living on a beach in Thailand! Or, insert your own dream destination. Seriously. Check out this excellent cost of living (COL) calculator from The Earth Awaits below.
A 2015 Lexus IS250, based on some quick research, goes for around $25,000. Based on the COL calculator that is almost two years worth of living expenses in Chiang Mai, Thailand. Is a new car worth nearly two years of my life? Nope, not to me.
My time freedom is that important.
This visualization technique works better for big purchase items such as a house or car.
Impulsive Purchases
Random Amazon purchases are another problem area for me. I have more cheap pairs of sunglasses that I would like to admit. Most of the time, I buy some random item that I 100% do not need, and I know it will not bring me any closer to my dream lifestyle. To avoid this problem, I use a simple little trick.
I just put the item in my shopping cart.
Then a few days later or so if I’m looking at something else, I’ll see that thing sitting there and be like “why the hell did I want that”. Then I’ll move it into the “save for later section”. Embarrassingly as of writing this, I have over 100 items in the “save for later section” of my Amazon shopping cart. But hey, its better than wasting money buying those things, and if I ever do decide I need to purchase that item, it’s saved there for me to remember.
Shopping
I never really go “shopping.” I use to have an issue with clothes where I would go to TJ Maxx and randomly buy new clothes, many that I never wore. Luckily I have since broken that habit. Becoming an aspiring minimalist, and Digital Nomad has helped immensely in that regard.
Technology
Technology is another problem area for me. New tech is just cool, right?
Quick Story
April 2018, I was slightly depressed due to working night shift and was going through a rough patch of insomnia.
So, I thought “ahh some new toys will make me happier”! So, I bought a Nintendo Switch and an Apple HomePod! Purchasing these things, of course, did not work out so well.
The next three weekends I pretty much spent all my time playing The Legend of Zelda: Breath of the Wild, this was fun for a bit, it’s an amazing game. But, then I was even more depressed because I felt like a lazy POS. I hadn’t accomplished anything except playing video games and working the entire month.
I can’t talk too badly about the HomePod, I like it and use it daily, but it still wasn’t a necessary purchase.
But I digress.
Typically, I have to use a combination of the “how long could I live in Thailand for” or the shopping cart technique to avoid new tech purchases. I still occasionally slip up. I am human, after all.
Free Guide
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Closing Thoughts
Avoiding the trap of lifestyle inflation allowed me to ramp my savings rate up to over 50% of my take-home pay. Ramping up my savings eventually allowed me to leave my W2 job to become a digital nomad.
If you are motivated enough, you can probably have anything you want in life, but you can’t have everything. Be mindful of your purchases, are they bringing you closer to your ideal lifestyle?
Are you an Aspiring Minimalist or A Reluctant Frugalist? What techniques do you use to prevent you from spending money on unnecessary things? Share your thoughts on avoiding lifestyle inflation below!
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[…] included, are doing it. Maybe the need to pay off student loans starts one on the path, and then lifestyle creep keeps them on […]