Avoiding Living Paycheck to Paycheck

Just Say No to Lifestyle Inflation: How to Avoid Living Paycheck to Paycheck

We’ve all been there. Payday rolls around, and you couldn’t be happier. You hit your online banking app and smile at your new balance before paying your bills. A trip to the grocery store, a night out with friends and a cruise around Amazon for some new shoes, and suddenly it hits you: That check is gone, and you’re right back where you started. Lifestyle Inflation is coming into play here.

The funny thing about this tale is that it has absolutely nothing to do with the amount of money you make. A full 78 percent of Americans describe themselves as living paycheck to paycheck, without being able to set aside money for emergencies or savings goals. While that’s not surprising for people who are underemployed or working for minimum wage, one in 10 people earning over $100,000 per year said they felt the same way, despite earning six-figure salaries.

What’s going on here?

Lifestyle Inflation Defined

In simple terms, lifestyle inflation is when your spending increases as your income rises. Think of it like a new set of shelves: You installed the shelves to hold your books, but now you realize you have room for even more books. After a few months happily hitting the bookstore, your shelves are packed to the point of overflowing, and you’re back to needing more shelves.

In this analogy, the shelf is your income and the books are all the things you buy. It’s pretty easy to see how this happens. For example, if you’re a lawyer making a great salary, you have money to spend on nice suits and a better car. So then you get a raise and upgrade your house to one in a fancy neighborhood. When you look around, you realize people there don’t drive Honda Civics, so you trade in your sensible car for a BMW. For every raise you get, you keep upgrading your lifestyle — even though doing so doesn’t actually make you happier than you were before.

Don’t Beat Yourself Up

If you’re living paycheck to paycheck, there’s a good chance that you’re a victim of lifestyle inflation, and that somewhere along the line your spending shot up when you got a raise. This doesn’t make you a stupid person; it makes you human. We’re all constantly surrounded by images of the ideal lifestyle on social media and TV, and all of those images come with convenient advertisements alerting us to exactly where to spend the cash to make our lives perfect. (By the way, this is exactly why we don’t have ads on BrainyMoney: Companies spend billions each year to get us to buy stuff we don’t need.)

It’s when we spend to the point of not having a nest egg that things can go wrong. It doesn’t take much — a layoff, an extended illness, an unexpected new family member — to tip the scales toward debt and disaster if you don’t have some savings to help you through.

Avoiding Lifestyle Inflation

To get off the lifestyle inflation treadmill, you may have to do some mental jujitsu to break some old habits. Try these ideas to get started:

  • Set Up a Budget: The first step to avoiding lifestyle inflation is to know exactly how much income you have and to track where every penny of your spending is going. Watch our Budgeting 101 class to get started — it’s easier than you think!
  • Pay Yourself First: The best way to keep yourself from spending is to hide your money from yourself. When you get a raise, set up an automatic savings plan that puts the extra money directly into your retirement account, or increase your tax withholding percentage so you get a big refund later. When you don’t see the money in your checking account, you won’t be able to spend it.
  • Skip the Upgrades: Instead of buying a new car on a “schedule” or trading up for a bigger house just because you can, try standing pat with what you already have. A good rule of thumb is never to buy something new if the old one is still intact and functioning. This habit will keep you from mindlessly inflating your lifestyle with things you don’t really need.

Remember, you’re not stupid because you fell into this. The world is a tough place, with all of the TV ads and social media images constantly nudging us to buy things. We’re here to make you aware of your surroundings. Now that you know what lifestyle inflation is and the three most efficient ways to avoid it, you’re way ahead of the game. Personal finance is a lot easier than you originally thought right?

Now take action! Sign up for our Budgeting 101 class and take control of your finances and life again. As always, let us know if you have any questions. We’re here to help!

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