5 Simple Ways to Avoid Lifestyle Inflation

Have you ever received a job promotion or a raise and thought “Oh sweet, now we can eat out more frequently!”

I have!

Just a year ago, Bailey was in school and working very part time at a local mall. We lived frugally so we could save for a house and tuition at the same time.

When she graduated, we bought a house! Ok, quick pic because it makes blogs more interesting.

Our little fixer upper after we replaced the roof ourselves with so much help from friends. Never. Again.

And got a second income! And we dropped the tuition savings since she graduated. Suddenly our income and expenses were changing…


And that’s where lifestyle inflation kicks in. Suddenly, we had a much larger income. We increased our restaurant fund. We increased our blow funds. We increased our miscellaneous fund among many others.

Now, to be clear, we lived very frugally while Bailey was in college. Our monthly restaurant fund was literally $30. Same with our individual blow funds (fun money). I’m not saying all lifestyle inflation is bad. If we kept going the way we were going, we would have gone crazy because we didn’t spend much money on fun stuff.

What I am saying is lifestyle inflation can cause you to lose out of significant savings opportunities if you aren’t disciplined. That’s why so many lottery winners lose all their wealth within a few years. It’s tough to control your desire for bigger and better houses and cars if you suddenly have an increase in cash.

So how do you avoid this? Let’s look at some practical ways to control lifestyle inflation.

How to control lifestyle inflation when given a promotion or raise:

Here’s the video version for those less inclined to the written word!

1. Give yourself a little slack (budgeted slack).

This may seem counterintuitive but here it goes — give yourself a little, tiny bit of slack. I mean, allow yourself a little lifestyle inflation just to reward yourself for the increase. But not too much.

This could be anything from giving yourself a little more budgeted money in your restaurant fund, blow fund, or something else that’s fun.

I think giving yourself this extra little bit of flexibility will actually help you be more disciplined with the rest of your money. I talked about this in my post about blow funds.

I believe with all my heart that Bailey and I spend less money overall because we have a budgeted amount of money each of us gets to blow on literally anything each month. It helps curb our spending because we know we’re allowed to let loose just a little bit.

2. Make a budget!

Speaking of a budget in the first point, make one! Budgets don’t sound fun but they aren’t what you think. People think budgets restrict their spending and thus restrict their fun. But what people don’t realize is a budget is far more freeing because you’ll know EXACTLY what you can spend! And it gives you permission to spend it.

With a budget, you’re more likely to be responsible with how you spend the money at risk of lifestyle inflation. For one, if you get an extra $200 a month as a raise, it’s really easy to say “Well, I’ve got $200 more now. Of course I can go out to eat with my friends again!” Budget that money when you aren’t weak-willed and when temptation arises, you’ll be ready.

3. Put it towards debt!

The easiest way to control lifestyle inflation is to make the money disappear quickly before you have the chance to spend it. Do you have consumer debt? Throw that extra cash at your debt! Pay it off as fast as you possibly can and you won’t owe anyone anything. It’ll feel so good. Your income, your greatest wealth-building tool, will not be absorbed by any payments.

And that will change your financial life.

4. Start/increase your retirement savings!

This is my personal favorite. This one can be done so that you never even see that extra money. With making a budget, you have to control your desire to spend that money on frivalous things. When you’re thinking about paying off debt, you have to force yourself to send in that payment.

If you start a retirement account (Roth 401k or Roth IRA), you can immediately start saving that money before it hits your checking account. When I got my last raise, I increased my retirement savings to 15% in my 401k. That money was pulled out before I got my paycheck. Lifestyle inflation controlled.

One thing to note: I wouldn’t do this if I had consumer debt. Pay that debt off first. And don’t get any more consumer debt after that. Then get a 3-6 month emergency fund. THEN increase your savings.

5. Automate savings

Similar to the last point, set up automatic withdrawals from your checking account into a savings account. You can do this so it automatically happens every payday.

Automating your savings will help you save for the car you want (no payment!) or the house down-payment or even that big vacation you want to take without paying it off for months to come.

You can control your money

Going back to lottery winners, those who blow their wealth always regret it. You may be given a much smaller increase in income but I’m confident you want to avoid any regret when it comes to your money.

What are you going to do with that next promotion or raise? I want to hear from you in the comments below!

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