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Top 5 Tips for Resisting Lifestyle Inflation

Think back to the first job you ever had as an adult. We’ll bet you spent just about all that money soon after you got paid and imagined all the things you’d do with a higher income. What about now? Do you still long for a bigger paycheck even though you’re making more? It’s called lifestyle inflation: the tendency for our lifestyle to become more expensive as our income grows, leaving us perpetually dissatisfied. So how do you resist the siren call of a fancier lifestyle? Here are our top 5 tips:

Decide on Your Percentages

What do we mean by that? Well, decide what percentage of your take-home pay you’ll devote to needs, wants and financial goals. The general rule is to shoot for no more than 50% for needs like housing and groceries, 30% for wants like entertainment and meals out, and 20% for financial goals like paying off debt and saving for retirement.

Follow the Right Order

Once you’ve decided what percentage of your paycheck will go to spending in each category, make sure you’re spending money in the right order. First, pay yourself—your future self, that is. When you put money aside for your financial priorities, you won’t be tempted to roll that money into your “wants” budget. Then, pay your bills, since you need to keep the lights on and the fridge stocked. Whatever is left over after you pay your bills and yourself is money that you can spend guilt-free.

Avoid Your Triggers

Once you have a spending system in place, the trick is sticking to it. How do you avoid the overspending that comes with lifestyle inflation? Simple: by avoiding your triggers. Maybe you got a raise or a bonus and you want to treat yourself. Nothing wrong with that, but remember your percentages and don’t spend all your new income.

What are the triggers that keep you on the spending treadmill? Is it quick trips to the grocery store for milk that end up costing $50 by the time you’ve bought treats? Is it online shopping that you turn to when you’re bored? Figure out what gets you spending and rein it in by avoiding your triggers and exercising extra self-discipline.

Be Proactive with Friends and Family

Maybe you’re experiencing lifestyle inflation not because you’re making more money, but because your friends and family are. If you find yourself busting your budget to keep up with friends and family, think of a proactive solution. Most of us don’t feel comfortable coming out and saying that we’re on a tight budget, so think of alternative ways to spend less money on social time.

Invite friends for walks in the park instead of going for expensive drinks in bars. Host potluck dinner parties instead of meeting at restaurants. Suggest that your relatives switch to homemade holiday gifts, or propose that the family only give gifts to the kids among you. Your social life should be a source of joy, not financial stress.

Rethink Inertia Spending

Lots of us spend money out of habit, not because it’s really bringing us pleasure. Is the pricey sandwich that you eat at your desk during the week really that much tastier than something cheaper brought from home? Do you need to upgrade your electronics, or could you skip a generation or two before trading up? Would you enjoy a book from the library just as much as one you bought to keep?

Take a critical look at your lifestyle spending and identify areas that really make you happy. Keep these, but ditch the spending that drains your bank account without doing much to improve your quality of life.

When you first get a bonus, raise, or better-paying job, you feel rich. A few months later, though, and you’ve upped your spending to match your income boost. Follow the 5 tips above and you’ll steer clear of lifestyle inflation—and feel richer for longer.

Photo credit: flickr

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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