What Is Lifestyle Inflation And How To Prioritize Your Spendings

Posted on Tuesday 10 December 2019

As you start to earn more money, it is only natural to spend more. You may move into a bigger apartment, go out for dinner more often, or allow yourself to shop at fancier stores. This is referred to as lifestyle inflation.

What Is Lifestyle Inflation?

Lifestyle inflation is the natural response to increase your expenses as your income increases. We work hard to enjoy more, so lifestyle inflation is expected, and once you have tried the brand name toilet paper, it can be hard to go back. Also, you may sign your kids up for private piano lessons, enroll them in a private school, or hire a professional landscaper to take care of your home.

While all these are normal, lifestyle inflation can be a battle lost from the start. Regardless of how much cash you’re bringing in, you may end up financially depressed if you cannot save and establish financial security for your future.

How Can You Avoid Lifestyle Inflation?

There are various ways to develo[p a healthy spending habit. However, to prevent yourself from practicing lifestyle inflation, you must first become conscious of its possibility. Secondly, you need to learn how to prioritize your spending.

Here are the six most effective ways to make smart spending decisions and avoid lifestyle inflation.

Calculate Your Earnings

Getting a raise of $1,000 doesn’t mean you can afford to increase your expenses by $1,000. If you do this, you may find yourself falling back into debt before you can even sign your credit card receipt.

An extra $1,000 on paper means you now have to account for somewhere between $200 to $300 in taxes. The $700 you are left with isn’t exactly disposable income either. If you want to get yourself out of that paycheck to paycheck cycle, you need to allocate money to secure your financial future.

Also, there are several hidden costs that you may need to account for when your income increases. If you want your raise to benefit you in the long term, you need to start putting away a good portion of your newfound income.

Analyze Your Needs vs. Wants

Understanding the difference between needs and wants is crucial to avoiding lifestyle inflation. Knowing the difference between what you need and what you want can take a lot of stress off you. This is because spending based on wants instead of needs equals debt. This will only lead to financial frustration.

However, it may sometimes be hard to differentiate between the two. This is because there’s a lot of overlap between wants and needs. For example, having a brand new phone, a huge house, and a flashy car are examples of wants that overlap with needs. This is because you need a phone, somewhere to live, and some form of transportation to survive. The difference here is to be mindful of version and size.

Also, we all need water to survive. A glass of tap water is no less hydrating than a $7 name brand. And while clothes are non-negotiable, there’s a vast difference between buying a $40 department store dress and a $400 designer dress.

Avoid Impulsive Purchases

Spending on impulse is referred to as emotional spending, and it’s a slippery slope. Emotional spending can be a shopping spree to get out of a rainy day funk or rewarding yourself with a new pair of shoes after a successful work presentation. An impulse purchase now and then isn’t going to break the bank. However, once you get into the habit of shopping to celebrate or lift your spirits, it can be hard to break free. After all these things happen every day

If you know that you are prone to impulse purchases, there are a few methods you can use to cut back your spending:

First, Unsubscribe from the promotional emails your favourite stores send you. These emails are endless, and with just a click, you may end up spending a month’s worth of salary on luxury shoes.

Secondly, subscribe to the 24-hour rule. If you’re out shopping and see something you love and desperately want to buy, force yourself to wait. If you still want it after 24 hours, you can extend the decision by a few more days.

Waiting gives you time to think about your finances and see if you really want an item. If you have any nagging thoughts in the back of your mind that you can’t afford it or shouldn’t be spending the money, the chances are that you’ll forget all about that item.

Make Gradual Upgrades

If you’re careful about how you spend your money, you can still celebrate your success and reward yourself for your pay increase. After all, you deserve it. But just as you deserve to enjoy a little more of life, you also deserve to set yourself up for financial stability later on.

Instead of making large purchases that will push you further into debt, choose to make gradual upgrades instead. For example, instead of getting a new SUV with a four-wheel-drive before the snow hits, opt for a new set of snow tires. Also, if you’ve landed a new job and want to upgrade your wardrobe, do it gradually by buying one piece at a time. Don’t spend your entire raise at once.

Don’t Let Others Influence Your Spending

Once you start earning more, you are likely to become surrounded by people who make and spend more. For example, your raise may have come with a promotion and new co-workers. Don’t let how other people spend their money influence how you spend yours. Everyone has their unique financial situation, and what works for someone else simply may not apply to you. When you see a friend’s glamorous pictures of her tropical vacation on social media, it's not your cue to take one. Resist the urge and do what is suitable for your financial health.

Create A Budget And Stick to It

Don’t forget the cardinal rule of managing your money wisely; a budget. Even millionaires maintain their wealth by creating a budget to control their spending. There are plenty of great ways to budget. If you want to have 24/7 access to your financial health, you can download budgeting apps. These apps will connect to your bank accounts to give you real-time updates on your spending, using categories like groceries, entertainment, clothing, and more. This is a great way to get a holistic view of your finances with minimal effort.

If you prefer a more hands-on approach, you can try using the 50/20/30 rule. This rule requires you to split every paycheck into percentages. 50 percent of your paycheck goes to necessities like housing, groceries, water, and utilities. 20 percent should be for saving and paying off debts, and the remaining 30 percent can go to entertainment, dining out, and vacations.

Budgeting is the best way to ensure that you stay on top of your finances. You can know precisely how much money is coming in, how much is being spent, and how you are spending it.


Everyone is susceptible to lifestyle inflation. Once you start making more money, it’s easy to spend more on expensive things or larger purchases. An income raise should ordinarily stop you from becoming a victim of debt collection, but lavishly spending this raise can plunge you right into this pool. The best way to safeguard your financial health is to understand how and why it happens. Then, you’ll be well-equipped to identify the warning signs and stop yourself from falling into the trap of living from paycheck to paycheck.