The other day I was looking back on my budget from when I was studying only a few years ago.
I used to get by for around 10,000 DKK (1,538 USD) per month – everything included.
Revisiting our budget, my wife and I now have expenses for about 40,000 DKK (6,154 USD) per month – everything included, which makes my share of it 20,000 DKK (3,077 USD).
Even though you would expect some scale advantages of having a combined budget, my monthly expenses have increased with 100% in just a few years!
100%?!
I was really surprised when we added up the numbers. I mean, I have never pretended that I live a leanFIRE lifestyle, but I was still quite surprised to see the increase.
I realized that I have made the mistake I always warn everyone else against; lifestyle inflation.
Lifestyle inflation means that you increase your consumption when you income goes up. Obviously, there’s no reason to do this. You were perfectly capable of getting by before your income increased, so why shouldn’t you be able to get by after your income increases?
Looking at the numbers, it became clear I had made three big lifestyle inflation mistakes.
Everyday consumption
I have simply started spending more money on groceries, take-away and restaurants.
When I was a student I would be super frugal about every single purchase, but now I simply don’t really think that much about it anymore.
My everyday consumption used to be around 3,000 DKK (462 USD) per month, but now it has increased at least 50% if not more. Honestly, there’s no reason
I would wish that I still had my student frugal mindset, but it is not only negative that my spending has increased. I live nearly purely organic, I choose the “good”, “healthy” and “free from” alternatives rather than discount products. I believe that my body benefits from this, but my wallet certainly doesn’t.
Traveling
My wife and I have gotten into a really
We used to backpack around the world living in cheap hostels with bed bugs, but now our travels have been replaced by 5-star hotels with amazing service, luxurious rooms, nice pools, excellent food etc. – although we still shop around for the good deals 🙂
We used to be very happy with the budget options, but now we could never imagine going back to traveling like that – and that is the very danger of lifestyle inflation! You become so used to a new standard that it is extremely hard to go back.
Lifestyle inflation is so much easier to do than lifestyle deflation, and that is why you should always think twice before going up the lifestyle inflation ladder.
Buying an apartment
Our biggest lifestyle inflation “mistake” was buying an expensive apartment. Period.
A few years ago we bought a very centrally located, nice and future proof apartment, which we enjoy immensely every day. But from a financial point of view, it might have been a lifestyle inflation mistake.
As you will see in our budget, our apartment makes up more than 50% of our monthly expenses. When you look closer at the numbers, the amount of money we pay down on the loan is a substantial amount of that, so it is not all out-of-pocket expenses, as some of it will be included in our net worth calculations.
Still, our apartment is definitely in the expensive end and we could have easily bought a cheaper apartment or rented one in the suburbs for a much lower amount.
When we bought the apartment, we probably made the mistake of choosing an apartment that we really wanted and the most expensive one we could afford instead of choosing the most affordable that was still satisfactory. That is lifestyle inflation in action right there.
However, on the positive side, we will be able to live in the apartment for many years to come and will not have to pay moving costs again in the near future. Also, the apartment is what has currently added the most to our net worth by far because of the gains in the market (check our latest monthly report to see what I’m talking about). It might end up bringing us closer to financial independence much faster, but it might also do the opposite if the real estate market crashes.
Finally, we really enjoy living in the area and the apartment is perfect for us – and it is of course also important to take the more intangible things into account when talking about lifestyle inflation.
So what can I do to reverse lifestyle inflation?
This is the million dollar question. It is entirely possible to reverse lifestyle inflation, but the only question is whether you want to do it. Technically, I could lower my everyday consumption, traveling and apartment expenses in a matter of days and weeks.
In general, the good thing is we are quite good at prioritizing our money and looking for deals – and not spend our money on stupid things, so I’m not afraid our consumption will spiral out of control.
I know after discovering my increased everyday consumption, I will definitely be more aware of it in the future.
I know our traveling expenses will most likely not decline as we simply like the new way of traveling too much – the only exception could be if we start traveling less after we get kids.
I know our apartment expenses will not change in the short term, but we do expect to downsize slightly in the future, which will lower our monthly apartment expenses and hopefully enable us to realize some of the gains.
The most important thing we can do now is just to make sure we do not inflate other areas of our life (except if we want to, of course!) 🙂
Your turn: Have you ever inflated your lifestyle? Did you deflate it again?