We all know the two golden ingredients to speed up your journey towards financial independence.
I’m talking about (in prioritized order):
- Save more money
- Earn more money
My wife and I have improved both in the last five years.
Our savings rate is higher than it was five years ago.
We also earn more money than five years ago. I’m talking at least double as much.
However, we seem to have a problem. Even though we earn more money now, our savings rate (even though it has increased) has not followed the same trend.
What is the problem? You guess it. Lifestyle inflation.
For those of you who haven’t heard about the concept before: Lifestyle inflation means spending more money as you earn more money. You inflate your lifestyle with all sorts of things you previously didn’t need, couldn’t afford or both. For example, you buy a bigger house, you buy a (bigger) car or you start eating at more fancy restaurants.
How have we inflated our lifestyle?
There’s a couple of areas where we recently have inflated our lifestyle significantly.
Every month my wife makes an overview of our spending. We always find something that surprises us. I believe making an expense overview would be beneficial for everyone.
Recently, our three biggest lifestyle inflations have been:
A couple of years ago we bought a new apartment. Even with a child, it’s still way too big for us.
I have mixed feelings about the apartment. Even though moving from our old apartment to the new is a clear example of lifestyle inflation, our real estate has been the driving force behind our net worth for a while. The larger apartment only adds to that trend to a higher degree than previously. So, it’s perhaps lifestyle inflation for a great purpose (if the real estate prices keep rising in the long run that is).
Since we can now afford it, we have decided to upgrade our apartment refurbishing several rooms. However, that means we haven’t been able to invest last month and this coming month. Could we have lived in the “old” apartment? Yes, of course.
Hopefully, we will get some of the renovation investments back when we sell the apartment, but I’m sure we won’t get all of it back.
Renovations are on my mind at the moment, since it’s
We have lived perfectly well without a car for a long while. However, after getting a daughter we are seriously considering buying or leasing one.
Until now, we have borrowed a car or rented one when we needed it.
Right now, we are testing out a car on a short-term lease. It’s not cheap having a car and a clear example of lifestyle inflation.
Getting a baby has had a positive impact on our hearts, but a negative impact on our wallets.
The amount of stuff a baby accumulates is insane. We have bought stuff we didn’t need. However, a lot of things we have bought have made our lives easier (like three different cradles for different purposes). Still, it is lifestyle inflation since we probably didn’t need them to survive and the impact on our overall happiness is probably minor.
In 2019 we have had an increasing tendency to buy things when we wanted or needed it.
This can be a slippery slope and you quickly lose the overview of your spending.
Every month, my wife and I have looked horrified at the amounts we have been spending.
Is it lifestyle inflation? It is. I can tell you for certain we didn’t spend as much money when we were students five years ago.
What are we then doing to contain and fight lifestyle inflation?
I must say I have had some issues watching money flowing out of our accounts and not into investments. Looking at the monthly overview of expenses, my wife and I have agreed on some things we will
Making up for missed investments
We have decided to lower our spending for the coming months and make up for the missed investments.
This means we will pay ourselves first and invest a larger amount of money at the beginning of the month. This way we’ll make sure to compensate for the renovations in particular.
Who knows? We might continue afterward at this increased rate.
Reviewing our expenses every month
As a relatively new thing, my wife and I sit down together each month and go through our expenses. We always look at the biggest expense categories and make decisions on what to do differently the coming month.
It’s generating insights and actions I hadn’t dreamt about.
Buying second-hand and selling used items
My wife is a second-hand ninja and she has become very good at buying quality stuff at good prices.
What’s even better is that she somehow manages to sell the items at the same price or higher after using them for a while.
Not only is it better for the environment, she always manages to keep a steady flow of income and expenses for our stuff.
This makes things like clothes a surprisingly small expense category each month.
Testing before buying
We have started testing things before deciding to buy them.
For example, we are currently trying out whether having a car will substantially improve our lives.
Another example could be baby gear we borrow from friends to see whether we (and our baby) like them enough to buy them ourselves.
Isn’t it dangerous to try things and get used to having them? Yes, but we also like saving money. This means we are quite critical reviewers of whether owning the item is worth it or not. If we don’t use the car often enough to justify the amount spent each month, we will not buy one. Also, if there are cheaper, equally good alternatives such as biking, public transportation, borrowing a car or taking a taxi once in a while, we will opt for those.
One thing is for certain. We have allowed our lifestyle to inflate since graduating five years ago and now we need to become better at containing and potentially reducing the inflation – you’ll see in our monthly updates how it goes 🙂
Your turn: How do you keep lifestyle inflation down?