Episode Summary:
In this week’s episode, we discuss how to control your lifestyle to find financial freedom. We introduce the concept of lifestyle creep, or lifestyle inflation, and talk about how dangerous and destructive it can be to your financial and overall wellbeing. There is a definite balance between the positive impacts of inflating your lifestyle and over-spending in a way that doesn’t increase your happiness. We dig into where lifestyle inflation comes from and tips for avoiding it.
Episode Notes:
We kick off with a discussion on lifestyle inflation and the point at which inflating your lifestyle builds true happiness versus just costs you more and more. The end goal is to find your appropriate level of happiness and spending and draw the line there.
Lifestyle inflation is the result of a few things:
- Pressure from peers and society to showcase your income level.
- An internal desire to reward yourself for hard work.
- A need to give your career progression meaning.
- The idea that paying for services will save you time or create convenience.
When you can identify the desired level of lifestyle spending and hold it steady, you will be consistently happy, but your savings rate will skyrocket as that additional income is saved and invested. Also, lifestyle inflation isn’t always a bad thing if monitored and controlled. If it outpaces your earning and savings rates, it can spell disaster. A reasonable rule should be that your savings should increase by the same as your income does.
What you can do to avoid lifestyle inflation:
- Track your expenses. It’s easy to let your spending inflate when you’re not looking at it.
- Keep your end goal in mind and understand there is always a trade-off.
- Remember that nobody cares about your lifestyle. They don’t care about your stuff; they don’t care about your clothes or where you go on vacation. People don’t care. So don’t try to impress them.
- Take the opportunity to reevaluate your spending and what level of happiness it actually creates. Then, use this exercise to scale stuff back. And do this regularly.
Top 3 takeaways:
- If lifestyle inflation becomes a habit, you’ll never have enough.
- There will always be someone richer, something nicer, more expensive, more luxurious.
- So inflate your savings rate, not your spending rate.
Show References:
- Friends on FIRE episode #095 – How to stop caring what people think and start living
- Friends on FIRE episode #27 – Why Tracking Net Worth Matters
- Friends on FIRE episode #15 – Expense Tracking Gone Wild
- Net worth tracking spreadsheet
- Expense tracking spreadsheet