Keeping Lifestyle Inflation Under Control

At the end of each calendar year, my full-time employer reviews our performance and decides if we deserve a raise, and if so how much we should get. They are willing to consider our input as far as what we feel that we’ve accomplished, things we need to work on and learn more about, and what direction we’d like to go in the future, but in the end they are the ones making the call as far as how our personal finances are affected.

At the end of 2014, I got a 5% raise. I was pretty excited about this as that is certainly more than what many employers in my community are known to give out for an annual raise. But I knew I needed to immediately review my 2015 budget and make some adjustments before lifestyle inflation got the best of my raise (and then some).

Thankfully, I was able to put most of my raise toward debt and savings rather than wasting it on lifestyle inflation. Here’s how you can avoid lifestyle inflation when you get a raise.

Needs vs. Wants

I’ve been known to have a champagne taste on a beer budget for most all of my life. I’ve always been a fan of the finer (aka more expensive) versions of things. One way I’ve tried to control this problem is by recognizing the difference between needs and wants. In fact, my co-worker and I were taking the other day when she said, “I need some new Sperry’s” and I responded, “Do you NEED them or do you WANT them?”. After a moment of consideration she admitted that they are a want and not truly a need. But then she shocked me by saying “You are so good at establishing the difference between needs and wants. I wish I was as good at that as you are.”!!!

I was so flattered by this statement as recognizing the difference between needs and wants and acting accordingly has been a struggle of mine. I have gotten better at it, but sometimes I still give in to my wants.

Have a Plan

As I said before, after finding out how much my raise was going to be, I immediately crunched some numbers and make a plan for my new budget. By not waiting for that “extra” money to be in my pocket I made sure it was put to good use on paper before I could waste it on something meaningless. When you know a raise is coming, you should already have an idea in mind for how to use that money. Sometimes this may include upgrading things and giving in to lifestyle inflation, but most of the time if your lifestyle is already comfortable you should put that money toward something productive.

Track Your Results

Having a plan in place isn’t enough on its own. At the end of each month (or however your budget is set up), you should track and record how you actually spent your money. Just because you plan for your raise to go toward debt doesn’t mean it always does. By tracking where your money actually went (like new shoes!) you’ll be able to see what your spending triggers and habits are. Then it will be easier to fix them.

What do you do to avoid lifestyle inflation?

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About Kayla

Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

Comments

  1. I think the drawing the distinction between wants and needs is the best way to curb lifestyle inflation. If you have your priorities in order it’s easier to act accordingly. It’s easy to spend that extra bit of money from a raise, so having a plan is also important.

    If I were to get a raise, I would calculate how much my take home pay would increase and dedicate that money to paying off my loans. I don’t really have a need for spending extra money, but extra debt repayment would definitely help.

    • That’s what I did with mine too Jessica, I put it toward debt rather than additional spending since my lifestyle is fairly comfortable at the level it’s at now. I might put some more money into my budget for other things besides debt later on though.

  2. I definitely put extra money toward debt repayment and savings, too. Lol sometimes it feels like I’m living like I’m broke except it’s almost a pleasant surprise at the end of the month to see how much debt I’ve paid off and how much I’ve saved.

    • I know what you mean! I only spend a limited amount on fun, groceries, household supplies, etc and sometimes my parents ask how I can get away with it being so cheap. I will have to spend a bit more on it at some point probably, but for now my spending level is fine.

  3. That’s great, Kayla! Lifestyle inflation is very subtle, but powerful, for me. I can feel myself easing up on worrying and feeling less urgency to pay down our debt. Becoming aware of this and acknowledging it has been a huge help for me. So has putting the extra money toward debt payments and retirement savings as soon as it hits our account. The longer it sits there inflating our balance, the easier it becomes to spend it.

    • I have been trying hard to put my “extra” toward debt and savings right away to so I’m not tempted to spend it on things like shopping or going out to eat…

  4. 5% is a healthy raise. Good to see it’s going towards killing debt and savings. We often use the want vs need test when considering a new purchases we often waiting 24 hours too, trying o avoid that decision in the store. This help cut down regretful purchases.

  5. SO, are you putting that raise money toward debt? 😉

    • haha, most of it is going toward debt or savings. But really since I quit my cleaning gig at my FT job at the same time as my raise kicked in, my budget went through a lot of changes all at once.

  6. Needs vs. wants really is the ultimate arbiter! I also try to always make myself run the exercise of ‘do I want this thing more than I want financial independence?’ And usually, financial independence wins out. For me, it’s all about staying focused on my long-term goals.

    You’re smart to have a plan for your raise before you even get it–good thinking!

    • Thanks Mrs. FW. I don’t spend it before I get it, because that wouldn’t be very smart in case something goes wrong, but I do always plan it out first so I can hopefully cut down on impulse buys.

  7. Mixed results on actually avoiding lifestyle inflation. But my raise each year is generally split between extra on the mortgage and more into retirement.

    • It’s hard to avoid lifestyle inflation for sure. I did put a good chunk of my bonus and some of my raise into my retirement account too.

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