Lifestyle inflation is what happens when you earn more money, and in turn, spend more money. It’s a natural part of life, but one that is often viewed as a negative to wealth building. And it’s true. If your income grows, but you spend all of it, you’ll never be able to build wealth.Â
In the financial independence world, lifestyle inflation is often viewed as a sort of character flaw. It’s how I thought of it for a long time. Lifestyle inflation only happened to people who were too weak to control their spending urges. The way I saw it, if I was 26 years old and spending $2,000 or $3,000 per month, I should be able to do that for the rest of my life. If I couldn’t, it was because I was too weak and consumeristic.
For most of my 20s and 30s, I kept up with what I viewed as this positive character trait. Even though I made six figures most years, I never increased my spending much from what it was when I was a student. When my wife finished her residency and we saw a dramatic increase in our household income, we still generally kept our spending in the same $2,000 to $3,000 per month range. It wasn’t until we were 34 years old that we finally gave ourselves permission to increase our spending. We spent nearly a decade living dramatically below our means. After so many years of living like students, we finally wanted more.
We bought a house that’s much bigger and nicer than the house we used to live in. It’s in one of the best neighborhoods in the city too. But in turn, our living expenses have gone way up. Lifestyle inflation hit us – and it hit us hard. So what’s this say about me? Was it a weakness of character? Poor values where I value things that don’t really matter? I used to judge people for falling into the lifestyle inflation trap – and here I am doing the same thing. I’m going to have to work a lot harder to pay for all the things we added to our life.
Like most of how I think about life, my views on lifestyle inflation have evolved as I’ve gotten older. I always thought of lifestyle inflation as something that needs to be avoided at all costs. But it doesn’t have to be. It’s going to happen and it’s okay to embrace it. The key is to embrace it on your terms when you’re ready for it.
My History Of Lifestyle Inflation
I’ve lived on a lot less than I’ve earned for most (or all) of my adult life. From age 18 to 26, I was a student and spent as much as a student could – which is to say not very much. I never made more than $20,000 a year during that stretch, so I couldn’t spend much by necessity.Â
I saw a huge increase in my income when I graduated and started my first job. And yet, even with this huge increase in my income, I still spent about what I spent when I was a student. My share of the rent was never more than $600 or so per month. I didn’t spend much on travel or clothes. I didn’t own a car, so I got everywhere by bike or mass transit. I had one year where I lived in a luxury apartment building and I only did it because I took over someone’s lease after they paid me to take it over.Â
You might think that moving into our first house was a lifestyle upgrade, but it really wasn’t. Our mortgage payment was less than our rent. Compared to our income, we basically paid nothing – our mortgage was only 3% of our monthly income at one point. We rented out a room on Airbnb too, so most months, we effectively paid nothing to live there. The crazy thing is that the value of our house was less than what we made in an entire year. And even when my wife suggested we upgrade to a better house, I still kept pushing that maybe we could wait it out another 5 or 10 years.
From age 26 to age 34, my wife and I kept pretty much the same lifestyle as we had when we were students. That’s almost a decade of saving money and spending very little relative to what we were making.
Reasons To Delay Lifestyle InflationÂ
It’s probably extreme to live like a student for nearly a decade. And while you don’t need to go to the extreme that I went through, there are good reasons to consider delaying lifestyle inflation. Consider the following:
When You’re Young, No One Expects You To Have Money. One of the biggest reasons I was able to live so frugally without feeling bad about myself is that there weren’t a lot of expectations about how much money I was supposed to have. Maybe in the old days, there was some pressure to get your life started when you were in your 20s and 30s. But these days, that simply isn’t the case. No one expects a 20-something to have any money. Most people don’t even expect 30-somethings to have any money.Â
I used this fact to my advantage. Since there was no pressure for me to live large as a 20-something recent graduate, I didn’t feel like I had to upgrade my lifestyle. It made it much easier to keep living like a student. Even now, I could probably continue to live on very little and I wouldn’t feel much pressure to increase my lifestyle. It’s not until you’re older where people start to expect more from you.Â
Give Yourself A Chance To Reach Coast FI. Coast FI is the point in your savings journey where you’ve saved enough money that your savings, by itself, will grow to a large number by the time you hit traditional retirement age. It’s a powerful position to put yourself in because, theoretically, it means you can use 100% of your income without having to dedicate anything towards your future. Of course, from a practical perspective, anyone who’s saving enough to reach Coast FI is probably the type of person who will keep saving for the rest of their life.Â
That being said, reaching Coast FI gives you tremendous confidence in your decision-making. I was able to quit my job in 2019, partially because I had saved enough in the previous 6 years to put myself in a Coast FI position. When my wife and I bought our much more expensive house, we did so from a position of strength – we had a lot of money saved already and knew that we’d probably be okay, even if things didn’t work out how we hoped.
I still save a lot of money. But I’m also able to make the decisions I make because I have this backup plan in my pocket. There are obviously no guarantees in life, but having a stash of money set aside early in life is still better than having no money at all. If you can delay your lifestyle inflation for even a little bit and reach a Coast FI position, things get much easier.
It’s Easier To Delay Lifestyle Inflation When You Only Have To Think About Yourself. It’s much easier to live on far less than what you could spend when the only person that you have to answer to is yourself. When I was in my 20s, I was the only person I had to really think about in terms of my lifestyle. If I wanted to live like a student, it didn’t really impact anyone else.
Once you add other people into your life – a partner, kids – things get more complicated. If it was only up to me, I’d probably have been fine living like a student for even longer. Indeed, when we had our first kid, I’d initially thought maybe we could keep living the way we’d been living for another 5 years. But it’s selfish for me to think that I get to make that decision for all of us.
I think a lot of people forget this – that how you choose to spend your money isn’t always your decision. We have other people in our lives that matter. If you’re going to delay lifestyle inflation, you need to do it when you don’t have to think about others at all.
Lifestyle Inflation Isn’t Failure – It’s A Part Of LifeÂ
There are good reasons to delay lifestyle inflation for at least a little bit. That’s what I did. But it doesn’t mean you have to live that way forever.
Lifestyle inflation isn’t a character flaw. We get one life. And often, there are more people in our lives than just ourselves. Even if you’re okay living on very little, others important to you might not be. We all have our own values, but it’s not fair to push our values onto others who don’t want them.Â
I was perfectly happy for a long time living on very little because the only person I really thought about was myself. But as I’ve gotten older, my priorities have changed. I have a family. We make plenty of money. We’ve saved a lot of it too during the years when we were able to live on much less without it impacting our lives.
Lifestyle inflation becomes a problem when you spend far more than you make and don’t save anything. But once you’ve taken care of the things that matter, it’s okay to start spending more. The point of money isn’t to save all of it. In an optimal world, we’d save exactly what we need and spend the rest.
Life has gotten more expensive for me as I enter my mid-30s. Not too long ago, I would have said I’m too weak and I’m valuing the wrong things. Better to live on nothing and give myself the freedom to do whatever I want (so long as it doesn’t cost too much money).Â
I’m more realistic now. Life can be good even if you’re spending money and have to work to support yourself.Â
More Recommended Ebike/Scooters
Check out these other ebikes and scooters I've reviewed:
- Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
- Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
- Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
- Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
- KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
- Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
- Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
- Hiboy S2 Scooter – The Hiboy S2 is an excellent entry-level commuter scooter that's perfect for someone looking to save some money in transportation costs and improve their commute. Check out my Hiboy S2 Review.
- Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($100) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- Moomoo (15 free stocks and 1 stock of Tesla or Google) – Moomoo is a free investing app currently offering 3 different referral bonuses if you open an account using a referral link. Read my Moomoo referral bonus guide for more information.
- Webull (12 free stock shares) – Webull's current promotion gives you 12 free shares valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free shares using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($150) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- SoFi Money ($275) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $250 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Upgrade ($150) – Upgrade is a free checking account that’s currently offering a $150 referral bonus if you open an account and complete a direct deposit. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Here’s a post I wrote with more details: Upgrade $150 Referral Bonus – Step By Step Directions.
- US Bank Business ($800) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
- GO2Bank ($100) - GO2Bank is an easy bank bonus that I recommend people take advantage of if they have an easy way of meeting the direct deposit requirement. I like that it’s easy to open the account and that the bonus pays out quickly. Check out my step-by-step guide on how to earn your GO2Bank $100 referral bonus.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Netspend ($40 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $40 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $40 to start! Make sure to check out my in-depth guide on how to set up these accounts.
- Digital Federal Credit Union ($20) – Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $20 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a saving account that gives you 6.17% interest on your first $1,000. Check out my in-depth post on how to set this account up.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Varo ($30) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $30 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $250 if you complete a direct deposit.
- 5% Savings Accounts. I'm currently getting 5.25% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
- US Bank Business. US Bank is currently offering new business customers a $800 signup bonus after opening a new account and meeting certain requirements.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
I feel like there’s always a balance between being the 100% spartan, minimalist saver vs. the extreme splurger that burns all of their money in buying Herme bags.
It’s hard to quantify what the exact balance is, but I’ve read something a couple days ago where they had the 1% rule of thumb: each year, you get to spend up to 1% of your net worth on luxury goods. I think this is quite reasonable.
There’s also a phase in our lives where we don’t have enough net worth to have 1% of it to be really be able to afford anything. I think in that case, it just simplifies down to the ‘delaying lifestyle inflation’ scenario you had above.
Totally agree, and well said. After being super frugal for many years, we definitely wanted some lifestyle inflation in some categories, while still keeping the rest of our spending more strict. And like another comment noted, COVID has given us a greater appreciation for spending on the things that really matter to us, whatever the cost. It’s okay to loosen up deliberately. Besides, we’re not above tightening our belts again someday if we need to!
While there are some people on the bleeding edge of living on $1,000 a month I think most people are happiest when they allow a little lifestyle inflation on the things that bring them joy while holding the line on things that don’t really impact how they feel. At least that was the case with us. We lived a lot better than college students but we also spent a lot less than most people with our income allowing us to meet our financial goals and retire without any financial worries.
After going through the FIRE journey, I can 100% attest that lifestyle inflation HAS to happen. Otherwise, you feel stuck, I thought I could be OK spending $22,000 for the rest of my life but if the coronavirus pandemic taught me anything, it’s that spending money is a necessary part of life.
After grinding away hard during the week, there has to be something that releases me from the void that is working a 9-5. It’s completely OK to spend more money as time passes.
Agreed – I wish I could live like I did when I was younger. As you get more dependents (elderly parents / kids / pets / etc) in your life – it’s just not possible. As long as you are aware and keep lifestyle inflation under your control it is what it is.
To combat the lifestyle inflation with your eyes wide open, I think the #1 tool would be your budget. A zero based one preferably.