The Consequences of Lifestyle Inflation

Christina Gayton
Dec 30, 2018 · 3 min read

Lifestyle Inflation happens when increased income — say, getting a new job — leads to a significant increase in spending.

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Lifestyle Inflation happens when increased income — say, getting a new job — leads to a significant increase in spending.

The logic of lifestyle inflation sees increased income as licensing to buy formerly unattainable luxuries: a nicer apartment, more Ubers, tech gadgets, and expensive dinners. Lifestyle Inflation is why a couple making $500k a year can claim they’re “broke.” It’s one reason why the majority of Americans have less than $1000 in savings.

Lifestyle Inflation is why a couple making $500k a year can claim they’re “broke.”

There’s no money in pockets that always find something new to spend on.

Granted, money is meant to buy what one desires. With more money, you can spend more on what you want. However, money isn’t just for spending. It’s for saving and security.

Just because you can buy a $4000-a-month apartment doesn’t mean you should. If a $3000 apartment could satisfy you, consider putting the $1000 in monthly savings towards investments, an emergency fund, or a future vacation.

Why We Want to Spend More

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According to behavioral science, humans have endless wants. It’s a key principle of economics. Once a goal is reached, whether it’s material or achievement based, hunger for the next goal begins. Humans have an insatiable want for more.

Humans have an insatiable want for more.

It’s part of the reason why happiness from a job promotion, wedding, or new phone fades. We adapt to the new favorable situation, update our baseline for happiness, and speculate what the next improvement is. However, no matter how high the income or lifestyle climbs, you can’t buy your way to happiness. Money can only go so far. Rather, experts show that the key to a happy life is more so found in relationships and a sense of purpose.

How to Combat Lifestyle Inflation

Instead of giving in to lifestyle inflation, practice appreciation for what’s already there. Not every dollar from a bonus needs to be allocated somewhere. An increased income can instead mean an increased savings rate; perhaps save 75% of every paycheck increase.

Increased Consumption is Still Okay

This is not to say that you should keep living in your first apartment, never upgrade your phone, and eat off the dollar menu forever. Money is meant for consumption. Don’t overthink increased spending on the occasional taxi, high-end shoes, or fancy dinner. Use money how you see fit. However, rather than pursuing mindless, materialistic consumption, think carefully about large increases in spending, such as a new car or home. It’s all about balancing long-term financial stability and present life enjoyment.

Liked this article? Check out Why having a long commute — or no commute at all — is killing your health and productivity or Should you invest in gold before the next recession?

To get in touch with the author Christina G. Gayton, check out her work at christinagayton.com or on instagram @christigabriella.

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