As most of us progress through our careers (or business), our paychecks increase and as a result our lifestyle slowly (sometimes unknowingly) increases to match.  Bigger houses, newer cars, fancy restaurants, and new travel destinations are just a few of the common choices due to having more money.

This is commonly called lifestyle inflation, basically as our income increases, as does our expenses.  It could be a result on comparing to your peers, your parents, or even the feeling of self entitlement.  Whatever the reason, it can happen to even the most frugal of us.

Mind you, there is nothing wrong with spending money that you have saved for a particular purpose, the problem arises when the increased lifestyle results in spending more than you have (see lottery winners), or spending when it gets in the way of your financial goals.

Lifestyle inflation has even crept up a bit on our family over the years, but we always make it a priority to have a high savings rate.  So even though we have recently built a relatively expensive home (to me), we still manage to save a high percentage of our income as it is one of our financial goals.

How to Avoid or Control Lifestyle Inflation

  1. Save a Percentage of Your Income – Instead of setting a dollar amount of savings per month as your savings goal, use a percentage of your income instead.  That way, as your income increases, so does your savings.
  2. Bank Your Raises – The idea of banking your raises has been mentioned before and is one strategy that can get you ahead financially in a hurry.  The strategy is exactly as it sounds.  Instead of buying more things with your increased income, why not bank it towards your financial goals?
  3. Set Your Priorities – What are your financial priorities?  Is it to save for a down payment on a house?  Build your retirement portfolio?  Or simply build a passive income stream?  Set your financial priority and stick with it!
  4. Have Fun with Your Money – Even though I’m pretty disciplined with my money, we know that there needs to be a balance between saving and spending.  What’s the right answer?  For us, we go skimpy on things that don’t bring long term joy and spend a bit more on things that do.

Altogether, it’s ok to buy nice things as long as you can afford it and it provides long term value for you.  However, if you can keep lifestyle inflation in check, you’ll most likely be the one to reach financial freedom first.

So back to you, has lifestyle inflation crept up on you?

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  1. Kirk S. on August 24, 2009 at 9:33 am

    Great advice (as usual). I am a big fan of the save a portion of your raise (I right now save 1/4, pay off mortgages with 1/2 and keep 1/4 for spending but hope to do a 50-50 split between investing and spending long term).

  2. Ray on August 24, 2009 at 9:33 am

    I believe the best way to avoid “lifestyle inflation” is to have priorities and have set goals…..if you don’t have those it’s very easy to spend any extra cash and then some more.

    we have been soo buys with wedding planning and new apartment last year did not have a lot of time for lifestyle inflation.

  3. Mark in Nepean on August 24, 2009 at 10:38 am

    Short, simple and effective post FT.

    I’ve always “banked my raises” and will continue to do so. Although, I must admit, I balance this with item # 4 (have fun) since IMO you have to enjoy some of what you’ve worked so hard to obtain!


  4. Sampson on August 24, 2009 at 11:28 am

    Sure has crept up quite quickly in our home.

    We have certainly maintained our relatively high savings rate, and we have quite a structured financial plan which we are on/ahead of target.

    I think in a sense its inflation, but on the other hand, sometimes I realize that we have been learning how to spend. The purse strings have often been quite tight around here, and now we realize we are well on our targets, we are learning that even if we spend that extra 10% (e.g. new car vs. used), it is still well within our means.

  5. Stephen Winters on August 24, 2009 at 2:07 pm

    Personally if you can bank your savings as a percentage, maintain your modest lifestyle and not jump to every “keeping up with the Jones’ fads” you’ll keep your lifestyle inflation in check. At least that’s what I keep telling myself. If you control items 1 to 3 in your list above you will be ahead of the game. As for item 4 – I do enjoy banking a small percentage so that I can squander on what my wife calls “man toys”. If I see it, like it, I buy it, no questions asked – as long as the funds are in my fun account.

  6. Ashley on August 24, 2009 at 5:12 pm

    I think people get into lifestyle inflation issues when they feel EVERYTHING in their life needs an immediate upgrade. Just because you’re making more money doesn’t mean you instantly need a brand new wardrobe, a fancy new car, and an apartment in a part of town where you’ll pay 20% more than market value. With my raises I’ve allowed myself a few things here and there, but I still operate my budget/savings as I did in my first job out of college.

  7. mfd on August 24, 2009 at 5:41 pm

    We don’t save a percentage but rather hard number every year but roll our pay increases into increasing our mortgage payments. Hopefully we can continue this trend.

  8. MR on August 24, 2009 at 6:31 pm

    Would love to hear what % of my salary I should be saving each month. I’m sure there is a range and some are more aggressive than others, but would love to hear people’s thoughts. I have definitely fallen victim to Lifestyle inflation!

  9. MikeG on August 24, 2009 at 7:00 pm

    The % of salary that you should save will vary, but I think 10% is the minimum I’ve seen mentioned. Not sure if that is pre or post tax. I personally go for 25% post tax, and will be rolling at least half of all raises into my savings (so the % will probably increase over time). When you get a raise dont forget to increase your giving budget too!


  10. cannon_fodder on August 24, 2009 at 7:26 pm


    As MikeG stated, there are so many variables during a person’s lifetime that there is no hard and fast rule.

    If I include mortgage prepayments and RESP/RRSP/TFSA contributions, then my wife and I are around 30% post tax. When I made more money, it was a lot more… now that we have a car payment for the first time in about 6 years, it is less… now that we can put $2,500 into an RESP and still get maximum CESG, it is less… when my child support payments finally come to an end, it will be much more…

    If you were at all very concerned you could lose your job earlier this year and you took drastic steps to cut back expenses yet didn’t fill the pinch as you thought, then you definitely have a lot more room to save. If you felt it hard, then perhaps you are well structured in your discretionary expenses OR you need to become enlightened on the difference between ‘needs’ and ‘wants’.

    Here is an analogy – years and years ago I was a member at a gym. I thought I was doing quite well in the strength training department and generally am one to push myself. One day I saw a young, strong athletic woman doing quite a bit more weight on the leg extension machine than I would normally do. Well, call it pride, ego, male chauvinism, whatever you want – I bumped up my weight so that it was even more than she was doing and never went back to my normal amount of weight.

    Sometimes we think we are doing well – until someone else comes along to show us we can do much better.

  11. Maiku on August 24, 2009 at 7:39 pm

    Wow, this is a very relevant post to me as I have been trying to raise the 20% for a downpayment on a house for the past 5 years. The problem is in that time the 20% has also gotten bigger and bigger since a) House prices kept rising at ridiculous rates and b) I kept deciding that I need more house.

    I think now I have settled on an absolute max which should help. In other areas, I have also noticed that my lifestyle has become a bit more lavish. I don’t tend to buy too much (since my wife complains that I have too much junk anyway) but I am tending to eat out more often these days. I am now trying to curtail this to reach my 20% goal by the end of the year.

    So I guess the moral is to have goals AND write them down so that they don’t start inflating as well.

  12. phi on August 24, 2009 at 9:00 pm

    The best way to avoid lifestyle inflation is to turn the TV off and stop reading magazines. You can have things now or have it all later. I’m not telling anyone how to live, but I am going to start taking my own advice.

  13. MikeG on August 25, 2009 at 12:48 pm

    @phi, great advice!!
    We all should remember that some things cost so much more than the upfront cost.

    Take TV, for example, it costs about $20 per month which seems cheap. But it also costs your health, your time with people you care about, and extra money for snacks as you watch and extra money for the crap you wouldn’t have bought if it weren’t for all the ads.

  14. MR on August 25, 2009 at 12:55 pm

    @MikeG – thanks for the information! I’m at 21% after tax, relieving to know I am in the ballpark. I am not the frugalist of people, this I know, so a good first step. Will definitely start banking raises, as now that I’m in a good income bracket, I do not need the extra money for lifestyle. Though sometimes I think I do!

  15. used tires on August 25, 2009 at 3:27 pm

    I think the reason why we sometimes over spend when we are earning more, is because we see the money that we once never had, and sometimes we just want to get better things, as it’s only normal for us humans. But at the same time, we can tend to regret it. Although I do find it that generally even people who earn $90,000 per year, might be in the same financial situation as someone earning half of that, just simply because they have the same spending habits.

    Till then,


  16. phi on August 25, 2009 at 10:05 pm

    Another reason I thought of for lifestyle inflation is when we try to justify our purchase through an “I deserve it attitude.” So you work hard all week, you feel like you deserve to buy this or that. While it’s true you deserve it, it’s not necessarily the same as you should buy it.

    I was going to buy a new lens for my camera last week, until I realized that I shouldn’t really be buying it because there were other things I should be saving for.

  17. Ms Save Money on August 26, 2009 at 3:52 am

    Inflation is definitely putting a whole in my pocket these days. i went to CVS (store) just to buy 3 items (bottle of Gatorade, Coke, and Head and Shoulder Shampoo) and the it came about to be $19.

  18. Will on August 31, 2009 at 5:38 pm

    I’ve worked in the opposite direction with “lifestyle” deflation after tackling my finances and realizing I was living outside of my means.

    Needless to say, I was kicking and screaming at first, but I got things handled and much more conscious of where my money is going.

  19. Alpha Centauri on September 9, 2015 at 1:35 am

    This advice seems so simple, yet so few people appear to follow it! There’s talk of Canadians having record debt loads. Goes to show how most people don’t seem to have the will power. Sadly, I think a lot of it has to do with your upbringing. If your parents teach you about money and thriftiness at a young age, then you definitely have a financial head start! Fortunately, bad habits can be undone. I wonder how many people reading this are financially astute thanks to their parents. And I also wonder how many people are financially astute now, even though their parents were not.

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