 October 20th 2008
 Financial
 5 comments
You’re probably heard of lifestyle inflation, especially in today’s current economic climate. You may even feel its influence whenever you get a pay raise or bonus. With an increase to your wage you probably feel you deserve a better car and a bigger TV; with a yearly bonus you may even think you can pay for a extension to your house. Rather than banking it and keeping your cost of living stable, you spend it instead. While I’m not saying you should never spend your money, keeping your lifestyle inflation under control will benefit you and your finances significantly in the long run. When things are rough (as they arguably are now) you will really appreciate the benefits.
Lifestyle inflation isn’t just about how much money you save and what debt you are in, so I’m not going to cover that topic too much, you’ve probably heard it all before. However, here are a couple of things to bear in mind. The problem with making more money is it usually means you can also take out bigger loans. Does this mean you should use it? No! And just because you are putting money aside, doesn’t mean it’s not working for you. It’s recouping interest and it can even be used as an emergency fund should the need arise. The thing about lifestyle inflation though, not unsurprisingly, is that it’s more about the cost of living the lifestyle you are on. With that in mind below are my four key strategies for keeping those costs in control.
- Buck trends
Somewhere along the line, it became important to have an HD television, an iPhone and a ridiculously expensive dress from a trendy designer, as though it were a barometer of how well off you are. However, if you want to keep lifestyle inflation in check you want to avoid this rat race. If your neighbors want to dig themselves into debt to create the nicest house in the street that’s their call. But in the evenings when they are frantically calculating how to pay off the bills will it be worth it?
- Choose your commitments wisely
Whether it be your broadband rate, your phone package, your gym membership or your cable deal, choose the one you can comfortably afford. These are commitments (usually monthly) that very easily build up if you don’t keep control of them. It’s no good getting the best TV package with every channel available when you can barely afford it. I personally have a basic package because I’m not at home to make the most of having every channel available.
- Buy just what you need
It’s the most obvious lifestyle change you can make but often the hardest, because our society revolves so strongly around consumerism. Even though we are incredibly privileged to have so much choice, it can be difficult not to let it get out of hand and very often leads to competition. I’m sure you can all relate to those instances of oneupmanship (who has the fanciest phone, console or car).
- Home is where the heart is
Ask almost anybody and they will say they want an home of their own (if they haven’t already got one). Unfortunately, buying your own house is typically one of the biggest financial decisions you will ever make and as has been proved a lot recently, people will put themselves into huge amounts of debt to get an home. However, the bigger the house you get the bigger the expenses that come with it, whether it be the bills you pay or all the furnishings you have to get. The same goes for cars with the cost of insurance and fuel.
Reader discussion
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The context in which you use the word inflation is unfortunate, especially because you’re not talking about increasing the pressure inside a vessel.
Inflation means the increase of the volume of money. There is no such thing as price inflation, let alone lifestyle inflation. Inflation is an increase in the volume of money, deflation is a decrease in the volume of money. The volume of money has nothing to do with how individuals are spending their money.
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Thanks for clarifying the true definition of inflation in an economics sense. The inflation in lifestyle inflation is simply about the inflated/increased cost of living ones chosen lifestyle, rather than being a truly accurate economics term. In that sense it’s a commonly used term.
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Interesting and though provoking post. I haven’t heard the term lifestyle inflation directly applied to this before, but I certainly recognize the phenomenon.
I think that the biggest struggle is having the money to fund the lifestyle you want, and this is in part due to the fact that you always want more. So when you do get that pay rise, you spend it on some extra stuff that you don’t really need and then you feel the need to proceed to the next level.
I find the best way to control this is to save as soon as funds enter your account as otherwise you will just spend what you have from month to month.
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I live in an area where keeping up with the Joneses has become a way of life. Now I see a lot of belt-tightening, myself included. Has that become a trend in and of itself? Maybe that is one good thing that will come out of this situation. We will now put more purpose and meaning into money we spend. Inflation, deflation, or their actual economic definitions aside, I believe the personal value of that which is purchased will increase.
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I agree Silke. I read recently that belt-tightening is indeed in fashion at the moment. It’s a pity the situation will probably go full circle again.
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