Have you ever looked back at how you spent your money a few years or decades ago and thought, “Wow I never would have spent money like this before?”
Welcome to lifestyle inflation!
Wait, What’s Lifestyle Inflation?
Lifestyle inflation (also known as lifestyle creep) is an increased standard of living (and spending!) that most adults see as their disposable income rises.
Most often, spending is focused on covering “wants” instead of just covering your “needs.”
This happens over a long period of time, so it’s not a huge shock to your system when you’re switching from $1 ramen to spending all of your grocery budget at Whole Foods.
This Sounds Bad. Is Lifestyle Inflation a Bad Thing?
Lifestyle inflation isn’t all bad. Sometimes, it’s just natural.
Let’s be realistic: how many times did you tell yourself you weren’t going to eat ramen anymore once you got a better job?
Your habits don’t stay the same when your lifestyle changes.
But there is one danger in lifestyle inflation: the hedonic treadmill.
The hedonic treadmill basically shows us this:
When something makes us happy, our brains release dopamine, and we feel instant gratification. It’s like unwrapping a gift when you got your first iPhone.
But humans also have a tendency to return back to the same level of happiness we experienced before the dopamine, despite the new positive in our lives. No matter how excited you were when you got that iPhone, you’ll never feel that same excitement again when you use it every day.
Over time, it takes more and more lifestyle inflation to make us happy- that bigger house, the nicer car, etc.
And this lifestyle inflation has some nasty side effects, like decreased financial stability, increase in debt, and a lack of saved funds that you need for your day-to-day needs, financial independence, and retirement.
So How Do I Get Off the Hedonic Treadmill?
There is one way to break the hedonic treadmill: take control of your lifestyle inflation.
You can create a situation where you can take control of your money and spending, then refocus your goals to experience a higher level of happiness.
And refocusing can do some serious good things for you, like boosting your overall happiness, improving mindfulness and feelings of purpose, and keeping you healthy.
Here are a few steps to help you take control of lifestyle inflation.
Step 1: Wake Up and Build Your Budget
The first step to controlling your lifestyle inflation is to build a budget.
Pat yourself on the back for the disposable income you’re bringing into your bank account every year.
Then be honest with yourself and track every dollar that you’ve spent the past few months.
Now for the hard part: find places where you can cut back and save more money.
We’ll talk in a second about why you shouldn’t cut EVERYTHING.
Need help building your budget? Check out my Level Up guide to building a budget from scratch.
Step 2: Take a Look at Your Goals
Now that you know where you stand on money and hopefully have a little to spare, write out the goals you have for your long-term money future.
Check your goals one more time before we continue- are these lifestyle inflation goals? Or goals that move you and your finances forward?
Then look at your budget and your goals.
Do you want to be debt-free in a year?
Do you want to be financially independent and quit your job in the future?
Or do you just want to be able to retire comfortably?
What steps and how much money do you need to reach those goals?
Now, do you have any leftover money that you can use to accomplish your goals WITHOUT taking on any extra debt?
Make a plan to start saving for your goals, then do it!
Step 3: Make Self Spend a Budget Item
We get it. You see that extra money in your budget and your big goals, and you want to save every single penny you have to get there FAST!
That’s great, except for one thing.
You’re on a fast track to financial burnout.
Have you ever seen what happens to someone on a diet who burns out? They tend to end their burnout with a super unhealthy food binge.
That’s how most people resolve financial burnout.
You’ve worked very hard to get where you are, so you do deserve to spend SOME of your money on you.
Having a little dopamine here and there keeps you motivated to keep going on the right path.
Take another look at your budget. Is it too lean? Did you cut out ALL discretionary spending?
Would you be better off adding in a small line item for an occasional Starbucks run? Or maybe lunch with your friends?
Yes, this spending takes away a teeny bit from your goals.
But you need to take care of your mental health, too.
Reaching your goals isn’t worth a nasty burnout.
Step 4: Ignore Peer Pressure
One of the biggest ways to control lifestyle inflation is to make sure your peers are helping you stick to your goals, not keeping you on the hedonic treadmill.
Do your friends constantly go out to dinner? Buy new cars, bigger houses, nicer jewelry?
Now I’m not saying get new friends. If these are your friends, they’re your friends for a reason.
But keep an eye on how their behavior impacts yours.
If they go out to dinner all the time, do you feel the need to go out, too?
If they just upgraded their car, are you looking to upgrade yours?
Peer pressure can have a strong impact on our purchase behavior. It’s important to remember that you can stray from the path and make your own decisions.
Instead of going out to dinner once a week, offer to host a night in at your house every once in a while. They can bring an overpriced bottle of wine, and you don’t have to tell them that dinner is from Aldi.
If they make comments about your car not being as new as theirs, feel free to mention that your 401K hit a new high this month, so you don’t feel the need to upgrade.
You know the phrase “keeping up with the Joneses”?
Ignore the Joneses and focus on yourself.
We can guarantee you they’re flat broke and in credit card debt up to their eyeballs anyway.
Step 5: Practice Delayed Gratification
Now you’ve made your budget, set your goals, saved yourself from financial burnout, and you’re not giving into peer pressure.
What do you do if you still want something non-essential that’s nicer than what you already have?
Try the 3-day rule.
When you want to buy something, set a reminder on your calendar for 3 days from now.
When that reminder comes up, do you still want it? That’s a strong indicator that it’s just not something you want in the moment.
Don’t care about it after 3 days? Well then aren’t you glad you saved your money?
Another strategy is the hourly wage comparison.
Take the total purchase price of what you want, then divide it by your hourly wage.
Let’s say you’re making a $60,000 salary (approximately $30/hour), and you want a $30,000 car.
Is that car worth 1,000 hours (approximately 125 8-hour days) of work?
Give yourself some time to answer that question, then take action.
Acting with intention and delaying gratification are crucial steps to getting off the hedonic treadmill.
Step 6: Find Contentment with What You Have
No matter how much we have, sometimes it’s hard to see what’s right in front of our faces.
Make time to slow down, look at how far you’ve come, and find appreciation for what you have.
Find happiness in where you are and what you have – because there was a day when your goal was to be where you are.
When you find contentment with what you have, make sure you pay attention to it as you bring new things into your world.
Ask yourself, “Will I be happy with this purchase next year? Or is this going to cause stress long term instead of happiness?”
Commit to focusing on what you have and your big goals for the future, be intentional about your actions, and you can take control of your lifestyle inflation.