The solution to most of our money problems is pretty simple: more money. But a larger income doesn’t guarantee a lifetime of financial solvency. For many folks who can’t break free from a paycheck-to-paycheck cycle, lifestyle inflation is to blame.
Lifestyle inflation happens when your spending increases as your income increases. You get a raise at work, so you move to a bigger apartment. You start earning extra cash on the side, and you spend it on small expenses (a new manicure habit, or a subscription to HBO) that add up over time. That’s the thing with lifestyle inflation—it often goes unnoticed.
The problem, of course, is that you gradually lose control of your finances. “Lifestyle inflation is different than a one-time splurge,” says Jackie Lam of the website Cheapsters.org. “It increases your living expenses over the long run. The problem with lifestyle inflation is that even though you have more money, you won’t be saving any more of it. Sometimes you may find yourself in even more debt.”
If your lifestyle spending has gotten out of control, here are a few ways to break the cycle.
1. TRACK YOUR SPENDING.
When you’re ready to deflate your lifestyle, the first step is to look at the numbers. Pull your monthly statements and carefully review your transactions so you can identify any spending problem areas. You might be surprised to find just how much those small lunches or Amazon purchases add up. Once you know where your weak spots are, you can prioritize and rethink how you allocate your money.
“I’m a fan of the Marie Kondo method of decluttering, and you can do the same with your expenses,” Lam says. “Is what you’re spending on bringing you joy? Do you have space for it in your budget?”
Love your daily latte but know you’re spending way too much money on coffee? Lam recommends you find a more affordable alternative. “I’m a huge fan of the ‘swap it, don’t stop it’ method,” she says. “Figure out what the value of something is and see if you can find alternatives. For instance, if you go to CrossFit class partly for the camaraderie, are there other ways you can get fit and hang out with people and spend less?”
2. THINK OF BUDGETING AS A HABIT, NOT A TASK.
Most people have the wrong idea about budgeting. We think of it as a one-time task: crunch the numbers, come up with a spending plan and boom, we’re done budgeting.
But budgeting is more of a habit: It’s most effective…