Lifestyle Inflation: Powerful Psychology to Save Money

Moving up feels great but beware of lifestyle inflation.

Who doesn’t like a raise or higher paying job?

Starting the first job out of school is a huge income boost… but most folks rapidly raise their spending with it. Even worse, some workers spend bonuses before they receive them.

Lifestyle Inflation = Lifestyle Creep

Your wants become reality. You can go out more and buy new toys. But in most cases, people buy things they can easily do without.

In time, some of the new toys and services start to feel like needs. If your boss fires you or emergency expenses come up, you’ll need to cut back and it doesn’t feel good.

That’s why I’m urging you to avoid lifestyle inflation. Don’t spend all of the money you earn. Save a little and it can prevent financial hardships down the road. Financial stress causes many family issues and can hurt your health.

It’s good to reward yourself but do it in moderation. You’ll be much happier if you save today. Then if you invest what you save, you’ll be able to buy more in the future. Interest can work for or against you.

From every tax bracket, many workers in the U.S. live paycheck to paycheck. They see each payday (after debt payments) as their spending limit. They spend it all and don’t prioritize their future.

Evolution has wired us to seek short-term gratification. That usually requires spending and taking on debt today. But in most cases, it’s more rewarding to wait. There’s usually room to cut back. A frugal lifestyle can improve both your finances and health. Here are 30 frugal living tips to get you started.

How to Avoid Lifestyle Inflation

To prevent over spending, you can sort expenses as “Niceties” and “Necessities.” Necessities are what keep you going strong. They include a place to live, food, and healthcare. They’re essential…. and the niceties, on the other hand, you don’t need. They just feel good to have.

If you require a cup of coffee to work, it’s a necessity. You can brew a cheap cup for $0.50 at home or turn it into a nicety with a $2 cup at Starbucks. The difference adds up over time. One cup a day at home instead of Starbucks will save over $500 in a year.

Stealth Wealth and Research

Avoiding lifestyle inflation is one of the fastest paths to the millionaire’s club.

Millionaires likely cross your path everyday but you couldn’t pick them out of the crowd. They got that way by avoiding the niceties like designer clothes, expensive cars, and going out to eat every day.

Instead of chipping away at their savings and showboating, their money is quietly working for them.

Once again, it’s ok to buy niceties as your income increases… just limit them so you can buy more in the future. It’s crazy to see how much people are willing to pay for some niceties…

The wine market is crowded and largely commoditized. Yet, you still find bottles for over $100 at many restaurants. Some people convince themselves the more expensive bottles are better… but are they really worth it?

One blind taste test showed that identifying wine as cheap or expensive doesn’t work. The odds of getting it right were 50/50. Countless other studies have backed up these results.

The video below gives a great breakdown of some of the research…

So you can easily do without the $100 dollar bottle of wine. Your mind is powerful and when you improve your understanding of how your brain works, you can better choose what’s valuable in your life. It’s mind over matter.

Don’t fall prey to lifestyle inflation. Letting your expenses creep up with your income can create and amplify financial hardships. As your income and savings increase, find a good balance between the niceties and necessities.

Invest your time and wealth mindfully!

Brian Kehm

P.S. Please share your thoughts below on lifestyle inflation. This is a great place to pick up tips and tricks. I’ll respond to every comment 🙂

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