Many people find that as their income rises, so do their expenses – a phenomenon known as lifestyle inflation. Over time, lifestyle inflation can completely negate salary increases and bonuses, preventing true financial progress. In this blog post, I’ll explain how lifestyle inflation works, why it’s so insidious, and how to combat it.   

Lifestyle inflation occurs when your spending automatically rises in tandem with increases in income. You upgrade to a more expensive car, move to a larger home, dine out at nicer restaurants, and purchase premium brand items. While each individual purchase may seem justified at the time, the cumulative effect is out of control spending that consumes all new income.   

Lifestyle inflation is dangerous because it happens gradually. You don’t notice spending increasing by 10-20% each year. But over a decade, expenses can double with no real increase in satisfaction or quality of life. Meanwhile, savings and investments suffer as more money is frittered away.   

Lifestyle inflation is fueled by comparison. You keep up with the spending of friends, colleagues, and celebrities without considering if it truly aligns with your priorities and values. You acquire items that communicate status but don’t necessarily bring happiness.   

The key to fighting lifestyle inflation is maintaining spending discipline even as income rises. Resist the urge to automatically upgrade expenses just because you can now “afford it”. Reevaluate large purchases based on need, not want.   

Instead of raising expenses, use extra income to boost savings rates. This positions you to meet long-term goals like retirement, college funds, and homeownership. Over time, higher savings will do far more for your quality of life than fancier material possessions.   

Automate savings before lifestyle inflation has a chance to creep in. Have a portion of raises and bonuses deposited directly into investment or retirement accounts. Opt for simpler pleasures that don’t cost much, like spending time with family and friends.   

While some increase in expenses is natural as income rises, lifestyle inflation left unchecked can be financially devastating. Maintain spending awareness and discipline. Save and invest extra income aggressively. Resist the temptation to “keep up with the Joneses”. Your future self will thank you.