We Lost to Lifestyle Inflation. Here’s How We Fought Back.
We Lost to Lifestyle Inflation. Here’s How We Fought Back.
April 20, 2020 by Ed
Do you find yourself spending every penny you earn, no matter how much you make?
Lifestyle inflation (a.k.a lifestyle creep) was our biggest financial mistake. Sure, education isn’t a path to extreme wealth, but you can earn a decent living. Even as two brand new teachers, we earned above the median household income. Over time, with use of the education career ladder and teacher side hustles, we tripled that initial income. Then we spent every cent.
The result? After 15 years, we had a barely positive net worth. We’d gone from spending just over $3k a month to spending 3x that. A mountain of debt balanced out our assets – two car loans, a house that was too big, and a vacation home. We’d lost to lifestyle inflation. Badly. Here’s how we woke up and fought back. You can too.
What Is Lifestyle Inflation?
Lifestyle inflation means your living expenses grow as fast, or faster, than your income. If you’ve experienced this, you may feel weak or dumb. We certainly did when we became aware. Don’t.
The truth is – it’s a critical part of our society. The signals are embedded everywhere. You earn more so you can buy more. Career progress is rewarded with consumption. Bigger houses, luxury cars, more expensive vacations. It’s easy to fall for.
Our Lifestyle Inflation Milestones
The biggest moments of lifestyle inflation happen with jumps in income. It’s good practice to take at least half of any raise and save or invest it. Instead, most of us just buy more – a bigger car, nicer house, or luxury vacation. We did ‘em all.
College Graduation
Right after you graduate college or start your first career is the best opportunity to build a strong financial foundation. If you can fix your expenses at or near this level, and start slowly investing you’ll be in great shape. If only we’d done that, we’d be financially independent – and then some.
Unfortunately, we’d both felt restricted by our childhoods. When we started making actual money, we immediately started spending. For a time we even spent more than we earned – on nights out and vacations.
Debt Freedom
At some point, my feelings of financial insecurity kicked in and we decided to eliminate our debt. For almost two years we actually controlled our expenses and put any extra money we earned on our debt. It was smart!
Then – once the debt was gone, we inflated our lifestyle all the way to our income. We never outspent our income again, but we never started saving. It was dumb!
I became a school principal, with the increased duties and salary that come with it. TFI almost doubled her income through experience and extra duty. Our income grew pretty well. Did we save?
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