5 Ways to Control Your Lifestyle Inflation

The solution to most of our money problems is pretty simple: more money. But a larger income doesn’t guarantee a lifetime of financial solvency. For many folks who can’t break free from a paycheck-to-paycheck cycle, lifestyle inflation is to blame.

Lifestyle inflation happens when your spending increases as your income increases. You get a raise at work, so you move to a bigger apartment. You start earning extra cash on the side, and you spend it on small expenses (a new manicure habit, or a subscription to HBO) that add up over time. That’s the thing with lifestyle inflation—it often goes unnoticed.

The problem, of course, is that you gradually lose control of your finances. “Lifestyle inflation is different than a one-time splurge,” says Jackie Lam of the website Cheapsters.org. “It increases your living expenses over the long run. The problem with lifestyle inflation is that even though you have more money, you won't be saving any more of it. Sometimes you may find yourself in even more debt.”

If your lifestyle spending has gotten out of control, here are a few ways to break the cycle.

1. TRACK YOUR SPENDING.

When you’re ready to deflate your lifestyle, the first step is to look at the numbers. Pull your monthly statements and carefully review your transactions so you can identify any spending problem areas. You might be surprised to find just how much those small lunches or Amazon purchases add up. Once you know where your weak spots are, you can prioritize and rethink how you allocate your money.

“I'm a fan of the Marie Kondo method of decluttering, and you can do the same with your expenses,” Lam says. “Is what you're spending on bringing you joy? Do you have space for it in your budget?”

Love your daily latte but know you're spending way too much money on coffee? Lam recommends you find a more affordable alternative. “I'm a huge fan of the ‘swap it, don't stop it’ method,” she says. “Figure out what the value of something is and see if you can find alternatives. For instance, if you go to CrossFit class partly for the camaraderie, are there other ways you can get fit and hang out with people and spend less?”

2. THINK OF BUDGETING AS A HABIT, NOT A TASK.

Most people have the wrong idea about budgeting. We think of it as a one-time task: crunch the numbers, come up with a spending plan and boom, we’re done budgeting.

But budgeting is more of a habit: It’s most effective when you make it a regular activity. Pick a time to check in on your spending and make sure everything's on track. Maybe it’s in the morning, when you sit down with your coffee, or at the end of the day, when you get home. Maybe it makes the most sense for you to keep a journal and write down all the stuff you spend money on throughout the day. Whatever ritual you choose, when you make budgeting a part of your routine, you keep your spending goals front-of-mind. Plus, if there are any problems, you can nip them in the bud before they get out of hand.

3. MAKE SMALL ADJUSTMENTS.

Once you’ve identified the areas you want to cut back on, it’s time to test your willpower. To make things easier on yourself, focus on one area at a time. When you try to cut back on everything all at once, the result is an entirely different lifestyle—one that may be too jarringly different to maintain.

If you want to roll back your spending on clothing, restaurants, and gadgets, for example, challenge yourself to first cut back on eating out for 60 days. Once you've got your restaurant habit under control, move on to clothing (or gadgets, but not both).

You can also take smaller steps within each challenge. If you ultimately want to spend $100 less on restaurants every week, start with a stepping-stone goal of spending $50 less. The next week, increase your savings to $75, and so on until your reach your restaurant spending goal.

“If someone has multiple problem areas, I suggest going for the easy wins first,” Lam suggests. “Try to cut out what may cost the most but offer you the least joy. Eventually you might have to cut out something that you really enjoy," but when this time comes, you will already know how good it feels to meet your goals.

4. AUTOMATICALLY SAVE YOUR RAISES.

The most straightforward way to combat lifestyle inflation is to make sure it doesn’t happen in the first place. Again, lifestyle inflation happens when you increase your spending along with your income. So when your income increases, resist the urge to "upgrade" your life, and instead put that additional income aside. For example, when you get a raise, increase your debt payments or your savings deposits.

Of course, it’s okay to celebrate, too. There’s certainly nothing wrong with spending your hard-earned money, you just want to be mindful about it. “Go on a reasonable splurge,” Lam says. “For instance, if you just got a raise or bonus, have a little bit of fun with it, and save the rest. You earned it, after all.”

Putting a spending limit on the splurge ensures you can keep it under control. As Lam says, it serves as a guideline and prevents you from blowing it all.

5. USE WINDFALLS TO PAY DOWN DEBT.

Similarly, when an unexpected amount of money comes your way, use it for good. Instead of squandering your entire tax refund or work bonus on sundries, put it towards debt or a financial goal. If you’re stuck in a debt trap or a paycheck-to-paycheck cycle, this is a quick way to supercharge your goal.

Money is a tool that’s meant to be spent, and there’s nothing wrong with spending it on things you enjoy. But it’s also a limited resource for most of us, so you want to make sure you use it in the best way possible.

"If you find yourself with more money, think about the few things that can really add value in your life,” Lam says. “I'd say add things in carefully and gradually. Give yourself a one-month trial to see how it goes. Be the CFO of your budget, and make sure what you spend your beans on (besides bills) has purpose or value.”