Lifestyle Inflation

Lifestyle Inflation

Lifestyle inflation has been a major part of the American dream ever since the end of World War II.

What Is Lifestyle Inflation?

Lifestyle inflation refers to an increase in spending when an individual's income goes up. Lifestyle inflation tends to become greater every time an individual gets a raise and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals. Lifestyle inflation is what causes people to get stuck in a cycle of living paycheck to paycheck where they have just enough money to pay the bills every month.

 In contrast to our parents' generation, lifestyle inflation has not been fueled by figure salaries and saving money, but through credit.

About 50 years ago, many of us started getting into the habit of treating ourselves to a new car or vacation before we really are in that money.

Many common events can trigger lifestyle inflation, such as graduating from college, getting a good raise at your job, or getting a promotion.

 In general, lifestyle inflation can lead to salary workers living paycheck-to-paycheck and spending money on things they don't need to impress people they don't even like.

 We have a tendency to believe that things will make us happy.

 What would really be a step toward happiness is spending less and obtaining Financial Freedom. Before you get to that stage, practicing poverty is a great way to test out your resolve to spend only on what is necessary.

 I see so many commercials on television and the Internet and try to get you to buy a new car even if you already have a perfectly adequate one. They will try to tell you how much better you will feel and how proud you will be driving a new car.

 I admit that I'm a little bit strange in this respect. I don't care so much about buying objects especially those that I have to take care of.

 I will much rather spend that money on an airplane ticket to a country that I've never been to before.

 During the recent lockdown, we got a taste of what it's like to maintain all of those lifestyle improvements when the money stops.

 Many families found that it was impossible to keep going for more than a few weeks.

 What we are going to see once moratoriums are over, is a huge increase in directions for renters and foreclosures on property owners.

 This is going to happen.

 Already the numbers are horrible. Even compared to the mortgage crisis in 2009, the number of people who did not pay their rent or mortgage in the past month is about 30%.

 Once payments are required again, how can anyone who's been out of work for several months make up for those missed payments?

Lifestyle inflation.

Over time, especially during our prime working years, most of us fall victim to lifestyle inflation.

We increase our spending and borrowing as our incomes increase.

When young, we tend to concentrate on the accumulation of stuff. As shoes in her closet will attest, this is especially true of women.

As guys, we have it easy. Throw on a tie and clean shirt, and we are ready for the office. For women, they need about two weeks worth of working outfits to not be talked about behind their backs as being frumps.

Lifestyle inflation tends to come at predictable times.

When you graduate from college and get your first real job, no more stale or cold pizza for breakfast. It's a bagel and coffee at Starbucks. After 4 years of busting your ass, you are ready to stop checking the bottom of your backpack for change.

I guess I'm older and too cheap for that. I can't see spending $5 or $6 for a marginal breakfast that is more laziness than satisfying. Call me frugal. I like value.

Over the next 20 years, whenever you get a promotion, significant raise, or a new job that represents a new status, that devilish thought comes to mind. I need a new car. Or I need a bigger house, even if the wife is not pregnant.

Lifestyle inflation keeps you living close to paycheck to paycheck. No matter what your income is.

In the late 60s, many people would buy a new car every 3 years. My father was a ship designer, engineer, and draftsman and we live well on one salary. The men in the neighborhood carpooled to the shipyard and rotated during the week so that each wife was without the family car on one day a week.

The only monthly payments my parents had were mortgage and the automobile plus utilities. And the phone was a landline, actually a party-line, that we shared with the Barbers across the street. AT&T - actually the Bell System - charged more for a private line.

No one could ever conceive of individual cell phones, or credit cards for that matter. Some department stores had store cards, but interest rates were sky high, and were paid off each month.

Now families have two cars, an underwater mortgage or high rent payments, and multiple credit cards being paid off at the minimum monthly payment level.

All it takes is an unforeseen medical bill or something like the coronavirus lockdown to drive millions into bankruptcy.