The Dangers of Rampant Lifestyle Inflation
Wasn’t life a whole lot simpler, and more affordable for that matter, during the years of young adulthood – a carefree time where we wanted for and needed little? Think back to the first time you moved out of your parents and into a house-share with your mates, or your whirlwind beer and vodka soaked first year of university. That squalid opening life-chapter where chaos ruled and the word ‘future’ was just that.
During these times of low expectations we didn’t just tolerate an ‘economy’ lifestyle that in adulthood we would now see as a life of grime. No. Our less refined, younger selves loved and embraced these years of not having much. They were the coming of age years that we romanticise and look back upon fondly.
But as time passed we began to grow less content with having nothing and we started to expect more, and as we start to leave our younger years behind and enter into young adulthood our mind-sets begin to change.
Usually an attitude shift begins to kick-in when we got that first serious full-time job which unlike the shop, bar, and fast-food jobs that we worked in before, paid us regular, seemingly enormous paycheques in comparison. Everything changed after this and the things that we once saw as luxuries soon started to become the ordinary. Before we knew it, these ordinary things eventually became necessities – in other words lifestyle inflation began to rear its ugly, yet seductive head.
Lifestyle inflation – what exactly is it?
Lifestyle inflation is this: with every juicy pay increase we are awarded, or higher-paying job that we get, our living costs always seem to rise accordingly. Whether we find ourselves taking home £100 per month more or £500, the extra money is soon swallowed up by extra lifestyle spending on additional goods, services and treats. We never needed these additional things before but upon getting a pay-hike, suddenly it becomes impossible to imagine life without them.
Like the new flat or house you now rent which costs £200-300 per month more than the last one – the old one was perfectly suitable and fit for purpose, the neighbours were great, and the area wasn’t too bad. However your new house has more ‘character’ than your old place and is in a smarter part of town – hell, the high ceilings are to die for! But at the root of it all, while your new place is undoubtedly nicer than the last, ask yourself this: did you need to trade up to a better pad? No, of course not. You traded up not because you needed to, but because you wanted to… and you would.
And this pattern of forever wanting to trade up can be applied to the cars that we drive, the clothes that we wear, and especially our eating and drinking habits. This is why that for all the extra money that we will find ourselves earning over time, we never seem to be that much better off than we were before – lifestyle inflation is the reason why many of us are never able to escape the paycheque to paycheque trap and, therefore, cannot build long-term wealth. This, of course, spells trouble for later life.
So we have established that by and large we are all guilty of lifestyle inflation to some degree – the big question is why exactly do we do it?
Danger #1: Playing keeping up with the Jones’s
Heard of the phrase ‘keeping up with the Jones’s?
It is a decades-old joke which comes from a 1913 American newspaper comic strip, where a family are in an ongoing battle to keep up with the Joneses next door in terms of social status, money, and having the latest things like cars, gadgets, and so on. Predictably, their schemes never quite worked out to plan and the Jones’s always came out on top, much to the distress of the key characters and much to our amusement.
Now while the original comic strip was a bit of a joke, it is also a bit of a cautionary tale – playing a game of keeping up with the Jones’s can have serious negative, if not dangerous consequences which can lead to financial ruin. And it is a dangerous game that all of us get caught up in to some degree.
We humans are a competitive bunch – those of us at the top of the pile want to stay there while those of us below want to compete and if not get to the top, at least climb a little higher up the food chain. And in our modern world, what better measure is there of our standing in life than the things that we own and the lifestyles that we lead? By having the latest smart phones, a nice family car, smart clothes, a home in a desirable area, and a lifestyle which shows that we are of a certain standing in the world, we are making a statement to those around us. As a behavioural trait, this is natural, and to some extent playing a little keeping up with the Jones’s can actually be a positive because it spurs us on to want more in the widest possible sense. A leading financial psychologist, Brad Klontz, said:
“It’s human nature to want to improve one’s economic and social standing—whether that’s upgrading housing, clothing or toys. If it wasn’t, we would all still be living outdoors wearing animal skins.”
But it is important not to get carried away with feeling the need to play keepie-uppie with those around us because trying to paint an ever more glamorous portrait of success for our neighbours, friends, and colleagues doesn’t come cheap. And, in fact, if we scratch beneath the surface a little it becomes apparent that the seemingly wealthy Joneses who you are trying to keep up with are themselves deep in debt, or at the very least living paycheque to paycheque. Yes, for all their nice things, the Jones’s are probably faking it because they are skint – and by playing one-upsmanship with the Jones’s, the unwary will quickly join them at the bottom of a financial hole.
Getting caught-up in a game of keeping up with the Jones’s isn’t the only cause of lifestyle inflation, however.
Danger #2: The ‘Entitlement Factor’
Whilst absolutely nobody wants to, or sets out to spend their way into financial ruin, equally, many might think something along the lines of ‘I’ve worked hard and given huge amounts of my time and energy to earn what I’ve got and improve my lifestyle. I deserve to treat myself a little and show off to the world a bit – I am entitled to enjoy the fruits of my labour, no?’ Unsurprisingly, this is known as the ‘entitlement factor’ and it is a leading cause of lifestyle inflation.
Now, in the same way that a little keeping up with the Joneses style one-upsmanship is natural, so too is a little feeling of entitlement for the finer things when you have worked hard – we live in a big, wide world and there is much to see and do. Life being as brief as it is, a little enjoyment while we are here is no bad thing. However the problems with entitlement can come when this desire to indulge a bit gets out of hand and starts to not only drive us to want more, but define us.
Keep your lifestyle inflation under control by setting aside a percentage of your income for savings
Bearing in mind that lifestyle inflation is a natural phenomenon, it is just not possible to avoid it altogether. And what’s more, it wouldn’t be possible to enjoy a better quality of life and really find out what the world has to offer on the same meagre budget as we had when we were young.
It is about striking the right balance between saving and spending, and the key to managing your lifestyle inflation is to ensure that any increase in spending is in proportion with your increased income – this, and making absolutely certain to set aside a percentage of your income.
A great way to do this is to commit to putting aside a percentage of your income into a saving plan – say, in the region of 20-30% – because this will ensure that your spending and savings is consistent, whatever your income might be. This way you will be able to enjoy your money a little bit and reward yourself for your hard work, whilst also setting a little extra aside for the future – in other words, you will be able to set boundaries which will prevent lifestyle inflation from getting out of control and help to keep one foot planted firmly in the present and another in the future.
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