If you receive a raise, it can be tempting to participate in lifestyle inflation. If you are working harder and making more money, but you still have the same bills, why not spend a little more, right? This can be a true statement in some cases, particularly if you made so little before that you never got to have any discretionary income, or you had so many bills that your income couldn’t cover them. If you’ve never had any fun, then you should definitely include fun in your budget. However, make sure you have a budget and that you stick to it. If your raise fools you into thinking you can spend all your added income on fun, you risk putting yourself back in a dangerous spot — full of debt or saving nothing. It can be exciting to spend more money and purchase nicer things, but in general, it’s better to use your new money in other ways.
1. Keep to a budget
If you had a budget before your raise, set a new one. Having more money means that your budget will change, so it’s important to update your budget immediately. There are many budget sheets available online if you don’t have your own, and using one that is already made can help you get started. Once you determine just how much disposable income you have, you should figure out how much you want to spend on lifestyle inflation. If you need more money for entertainment, then you should set it aside each month, and stay in budget. If you want to save for a vacation, you can do the same. Just make sure that you make a reasonable monthly change, and then stick to it.
2. Pay down debt
Hopefully if you have debt that was hard to manage at your previous income level, you prioritize paying it down in your new budget. Not only should you be making minimum payments, but if possible, you should be paying your debt down as quickly as possible (especially high-interest debt like credit card debt.) Making minimum payments will prolong your debt repayment, whereas paying as much as possible will eventually leave you with more disposable income long-term. Paying down debt can also help you improve your credit score, which can affect your ability to get a loan or be hired for a new job.
3. Prioritize savings
You can never have too much savings. Some people might disagree, but the truth is, if you put away too much towards retirement, you can always spend it later. If you save for a home that is more expensive than you need, you can use the money for something else, and if you never need your emergency fund, then you can also use that money for a different purpose. If you are making more money now, you should be saving more too. Make sure that your retirement savings, emergency savings, and general savings are where they need to be. Once they are, put away a little more anyway. While lifestyle inflation can be fun, so can having enough money for the things you really need down the line.
4. Be smart at the store
One of the easiest ways to beat lifestyle inflation is to make smart decisions at the store. First, never go to a store because you are bored. Only go to a store when you really need something, and go straight to the item you need, put it in your cart, and leave. It’s easy to justify purchases at dollar stores or the dollar rack because they don’t break the budget, but they also waste money on items you usually don’t really need.
Also, when you go to the grocery store, have your menu planned: know exactly which food items you need and don’t purchase any impulse buys. Shop the sales when possible, and don’t go to the store hungry or you will buy food you don’t need and isn’t healthy for you.
5. Stop trying to be like everyone else
Yes, your friend with the brand new Mercedes looks sharp, and seems to have a lot more fun driving than you do. The problem with comparing what you have to what other people have is that you will always find someone who has something better. Lifestyle inflation truly gets out of hand when you want to compete with friends, family, or even strangers, because you can always spend more. Instead, figure out what you truly need to be functional and then include money in your budget for what you want and enjoy; don’t get stuck believing that you will be happier if you have nicer things. If you find yourself spending money because you feel like you need to to fit in, make an effort to say no to peer-pressure spending. Make a different suggestion if your friends always go to expensive restaurants, and stick to what is important to you.
There are many practical ways to deflate your impulse spending, but make sure you get these five basics in control first. Then, worry about comparing name brand versus generic, using coupons, and so on. Also, it’s important to note that not all lifestyle inflation is bad. Going out and buying things you don’t need without a good reason is a poor choice, but spending more money or time to help other people, or to be genuinely happier, might be a good thing sometimes.