Lifestyle Inflation – The Upward/Downward Spiral

“Oh no… another lifestyle inflation article,” groaned readers of the personal finance realm when they read the latest offering from My University Money.

Yes, I know, many of you have seen this before, and are probably thinking, “Man, I don’t go out and spend frivolously, I’m not trying to pretend I’m a Rockefeller, I’m just an everyday person, I don’t have any lifestyle inflation.” Here is the thing – lifestyle inflation is a silent beast. It sneaks up on us without being aware and often it grows on itself. The interesting thing is I’m not one of the “live-like-a-pauper-until-your-rich” type of individuals. Anyone who says a little lifestyle inflation isn’t fun is flat out lying. As long as you know the true cost of what your new style of living is going to run you, then I say go for it. This is why preaching to people that any form of spending more on themselves is bad, rarely works. Instead, my approach is just to realize the sacrifice in future earnings you are taking by letting your spending rise, and then make sure that you get the most happiness out of the luxuries you are treating yourself to. This often means taking things on a case-by-case basis. For me, buying a $35K sports car because young guys are supposed to like sports cars, they look sweet, and because my buddy has one is a crazy bad example of lifestyle inflation. On the other hand, if you grew up working on cars, they are a personal passion for you, and you would get a major uptick of joy every day from buying this car regardless of what others had – then it makes complete sense and is definitely not something that is “evil” and you should feel guilty for (providing you can afford it of course).

Lifestyle Inflation Isn’t Prejudice – It Hates Everyone Equally

Negative lifestyle inflation appears to me to be an equal opportunity affliction. The stereotype is obviously people who don’t plan anything and either can’t or won’t do the basic math on borrowing money. There are certainly enough of these people out there, but I would argue there are probably more people that earn a decent-to-above average income and are smart-to-really really smart individuals, that also get themselves into trouble with this weird psychological response to material things. It is one of those subjects that seems to be so instinct-driven, that logic doesn’t really sink in for most people, and then the spiral begins. Once you allow material items to start determining your self-worth and take up a large part of your identity, it doesn’t matter what your income level is, who your friends are, or even what you specifically like to spend your money on, lifestyle inflation is inevitable going to get you. Take a look at many of the professional athletes out there. Many of them come from very average backgrounds, the type of people that would claim if they had a million dollars they would be completely happy in the world – yet they earn and spend many millions of dollars (most of the time trying to keep up to their teammates) and are not really any happier for it, nor do many of them take the opportunity to set themselves up for life.

A Snowball’s Chance in Canada?

I often think that we are able to justify lifestyle inflation in our heads so easily because it happens incrementally and because it is all around us. A personal example would be my new snow blower. Now I live in a part of Canada where the vast majority of people have a snow blower. They are great machines, and are lifesavers for many people during those 25 inches-of-snow dumps that we sometimes get. That being said, people got by without snow blowers just fine 40+ years ago, and from what my dad says, “There was 3 times the snow back then boy, and it was heavier snow too.” I’m a big guy, my heart is fine (maybe a little cold on occasion, but it still pumps ok), I’m in pretty decent shape, what is wrong with using a shovel? I used a shovel the first year I lived in my current location. After most snow storms it took me about an hour to shovel my whole driveway, and maybe 2 hours for the largest snow dumps. The exercise did me good, and the shovel never had anything wrong with it I couldn’t fix without spending no money. Why do I need a snow blower? Well everyone else has one. People would consistently make fun of me for shovelling (including my parents), so they bought me one for Christmas. I will obviously enjoy the gift, but do I really need a snow blower that will require yearly maintenance? Probably not. Inflation at its finest baby.

Those Darn Joneses – Always Racing Ahead

How many times have you seen the keeping-up-with-the-Joneses mentality start to subtly affect an individual or couple, and then suddenly they are driving two new vehicles, and have an RV parked outside their new renovated home? Is that new bathroom really going to give you $15,000 worth of satisfaction? If we put that in our little compound interest machine, and let it sit there for 20 years at a 8% average rate of return, it spits out roughly $70,000. Does that new bathroom give you an amount of satisfaction that is equivalent to retiring a year early? Maybe it does for some people, and to those individuals, I say go for it! Enjoy your Jacuzzi tub, your upscale porcelain and his-and-her sinks. Every day you will derive enjoyment from this and never look back. For the rest of us however, do we really need it just because the person next to us does?

I find that positive or negative momentum is huge when talking about personal finance in general, and specifically lifestyle inflation. If you begin to look at what really makes you most happy in life (and those around you) and make a plan to pursue these goals, then your logical/rational choices will compound on each other. I truly believe that the vast majority of people that approach their expenditures and luxury selection like this will get most, if not all of what they want. If you begin to measure yourself against others by material value of goods however, only two things can happen:

1) You become a stock trader for Goldman Sachs and get more crap than everyone; consequently, you win the game. YAY!

2) You knock yourself out trying to get more stuff than everyone else in the neighbourhood, then you realize that you don’t want to live in such a low-class neighbourhood anymore and move to a more expensive location. Rinse and repeat until you go bankrupt or die from the stress of trying to keep up to scenario #1.

Which scenario would you guess is more common?

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11 years ago

The second one, I believe. I agree with you that if one is not enough without something they are not likely to be enough with it. However, I also think that some things in life are worth having – only if they come from internal sense of value rather than a shallow competition with the nabours.

11 years ago

I can personally say that I also am fine with shoveling snow but I would love a snowblower. I would never spend the money to buy one but if I ever received one as a gift (or if you grow tired of yours) then I would come to not wanting to go back to shoveling.

Um, have you been spying on my life? We’ve outpaced the Jones’ in our neighborhood, which is why we now have to move into a bigger and better neighborhood (well, that and the schools stink in our current ‘hood). Situation #2, for certain!

Oh, that said, I don’t have a smartphone because I don’t think it’s necessary – to me, it’s the epitome of lifestyle inflation!

I’d guess the second one is more common. I used to be a slave to lifestyle inflation without even realizing it. Over the last couple of years I’ve done much better and plan to continue. One thing that helps us, is to increase our retirement contributions when my husband gets a raise.

11 years ago

I’m sure the second one is more common, but on the first one: “You become a stock trader for Goldman Sachs and get more crap than everyone; consequently, you win the game.” – he who dies with the most toys wins, right?

I would say that it’s no stretch to say “mo’ money, mo’ problems” and due to lifestyle factors and other reasons, just because you make tons of money doesn’t mean you aren’t having financial problems. Make a million but spend 1.5? You’re going to have some problems!

11 years ago

A colleague of mine said it well when we were debating the merits of his purchasing another riding lawn mower, so that he and his wife could mow their two-acre yard faster. It was used, and a great deal. In the end, he decided against it, with the reasoning that it was yet another engine to maintain.

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