While it’s often amusing to think back on the “good old days” of our youth, there’s no denying that modern creature comforts are generally preferable to older innovations. Things like car phones, dial-up internet, and CD players are more like charming museum pieces than tech we want to resurrect. Now, no one goes anywhere without a smartphone. So what does this all have to do with lifestyle inflation, and how to live below your means?

Be sure to also check out our free webinar that discusses the financial strategies used by the 1% for even more help!

What is Lifestyle Inflation?

Lifestyle inflation is the natural tendency of human beings to desire improvements. As one blog defined it, “Lifestyle inflation is the unnecessary expansion of spending to match an increasing income.” And in an economy driven by consumer spending fueled by technological improvements, creativity and never-ending opportunities, spending comes pretty naturally.

In college, we are happy to buy tennis shoes from Walmart and skincare from the grocery store. However, there’s generally a normal progression to more sophisticated spending habits as income increases. Now the shoes have to be brand name and the skin care must come highly recommended by your favorite influencer. The job the product fulfills may be similar, yet we convince ourselves the higher expense is worth it in terms of quality, features, or what we imagine the product will do for us.

Even later in our lives, if your income allows it, you may buy a pair of Nike Air Max’s for basketball, a pair of Mizuno’s for running, and maybe some Adidas for cross-training. And your skincare routine is likely to shift from makeup remover and moisturizer to a slew of serums, creams, and cleansers from the hottest brands. The reality is, that we all want to have nice things, and when you increase your spending incrementally, you don’t notice it right away. Yet eventually, this can catch up to you if you don’t live below your means.

The Phases of Lifestyle Inflation

The increased costs of the 3 phases—college, young professional, seasoned careerist—see your costs first quadrupled, then increased tenfold or more. This is what we call Lifestyle Inflation. Lifestyle inflation causes us to transition from a $3 face cream to a $50 anti-aging moisturizer over a 30-year time frame, representing a 9.8% annual increase, whereas during that same time, “inflation” as defined by the government might only be 3.5%.

It is interesting to note that neither athletic shoes nor skin care fall into any of the government’s “basket of goods and services” that are identified as necessities. While we understand things change and technology renders certain items obsolete (think Blu-Ray replacing DVD players, which replaced the VHS players that used to be a “luxury”). As a consumer, you have to be aware that lifestyle inflation is above and beyond the basic inflation rate calculated by the government. Lifestyle inflation is a whole other “basket of goods and services.”

The Uncalculated Costs of Lifestyle Inflation

“Spending is quick; earning is slow,” says the Russian proverb. And for most people, spending comes much more easily than earning, saving, and investing. Yet the costs of lifestyle inflation run deeper than the immediate effect to a bottom line.

The Cost of Stress

In our consumer culture, many have the feeling they are running like a hamster on a wheel. Our income increases, and so does our spending. We take on a bigger mortgage, a higher car payment, put our kids into a private school, and voila—you’re trapped on the treadmill.

One advantage of financial prosperity is that it gives you choices. Options. Freedom. Yet if you raise your lifestyle to compensate for the income burning a hole in your pockets, you’ll never have the experience of true financial freedom. It is natural to want to spend what we earn—yet it’s unnecessary. The wealthiest people are those who live below their means. We’re talking about the “millionaires next door” who drive used cars and live in middle-class neighborhoods.

Got Debt?

Debt is another huge cost of lifestyle inflation. Many people struggle to pay off their debt because so much of their income goes toward “lifestyle inflation.” After all, once you get a taste for something you like, it’s hard to go back. When you upgrade your skincare or start eating out every week, cutting back is difficult. And when given the choice, many consumers loathe to give up their new favorite things. As a result, debt stagnates.

Even those without consumer debt may find that lifestyle inflation keeps them from saving money and building wealth.

What About Opportunity Costs?

One of our 7 Principles of Prosperity is to measure opportunity costs. What this means is that lifestyle inflation doesn’t just cost the difference between the Volkswagen and the Lexus; it costs the difference plus the money that difference could have earned in years to come!

5 Ways to Live Below Your Means and Conquer Lifestyle Inflation

If you want to be in control of your lifestyle inflation, it’s time to do what the millionaires do and live below your means. Living below your means doesn’t mean going “without.” Instead, it’s about making calculated decisions about where your money goes, so that you can build wealth along the way. You can still upgrade your lifestyle as your income improves… simply with a little more strategy involved. Here’s how to live below your means and enjoy it.

1. Treat Your Dollars like Seeds, Not Fruit

Seeds you save for planting, fruit gets eaten and disappears! It is said that Warren Buffett wouldn’t give a friend a quarter if she only needed a dime for a phone call. He would make change and keep the extra 15 cents. For him, the joy of money was never in the spending of it, but in the multiplying of it. Indeed, a mere dollar will eventually grow into a million, given enough time and the right strategy.

Think about what is worth the money you spend instead of planting it. Is it worth having the sports car if a modestly priced sedan will do? The answer is up to you. However, one option may give you a chance to save or invest the difference. And who knows, maybe one day the sports car will qualify as living below your means.

2. Lead Yourself Not into Temptation

Why do you think the IRS collects taxes before you even see the additional amount in your paycheck? So you don’t spend it, of course! In the same way, you can live below your means by forcing yourself into saving through automatic withdrawals, mortgage payments and whole life cash value accounts. One of the most certain ways to save money before you spend it is to treat it like you’re paying a bill. Then you can enjoy what’s left to use on things that are more fun. This ensures that your future self will have some options for skin care and tennis shoes, too.

3. Save Your Raises

The next time you experience an increase in income, consider how to save the difference rather than spend the difference. This is not only a smart financial move. It will also increase your options and lower your stress should your income ever take a turn in the other direction, through circumstance or choice.

4. Get Real About Priorities, Values, and Needs Vs. Wants

Get clear on what you want money to DO for you. What’s truly important to you? What are your top priorities, and if someone looked at your bank account, would they find clues? Strive to align your spending with your values.

Want to drive a nice car, or take the family on a vacation to remember? Please do—yet be smart about it. Watch your movies at home and pop your own popcorn to save up for those Broadway show tickets, or perhaps purchase a new car (or a car with 10k miles on it) once every 5 years instead of every 3 years. See how else you can afford the splurges you enjoy the most without compromising your ability to build cash-flowing assets.

5. Practice Gratitude and Contentment

Instead of letting catalogs and online shopping keep you in a constant state of comparing yourself with the Joneses, enjoy what you have. The latest game station isn’t necessarily better than a monopoly board. It’s just different. Love what you have, and realize the Joneses might just be thinking the grass is greener on your side.

And here’s the real kicker. When you stop worrying about what the Joneses are doing and focus on what you HAVE, you create more joy and memories right now. You may only have board games when you want a PS5, yet pining after something you can’t have won’t change your circumstances. So spend that time organizing a game night that brings your loved ones together and make the most of what is possible. You won’t regret that, yet you might just regret it if you spend your time wishing things were different.

Be sure to also check out our free webinar that discusses the financial strategies used by the 1% for even more help!

Do You Live Below Your Means?

You don’t have to scrimp or have a budget to live below your means. In reality, it’s a way of getting your financial priorities in order so that you live well for your present AND future self. Saving money, thinking about opportunity cost, and creating cash flow are all good ways of supporting your future self. To learn more about the Principles of Prosperity, and how they can help you live below your means for success and abundance, sign up for our complimentary Prosperity Action Pack.

If we can help you get started on your savings, we encourage you to set an appointment or email us directly at welcome@prosperitythinkers.com.