Postpone Lifestyle Inflation

Key note: As you earn more, do everything you can not to spend more.
Keep inflating your savings rate and not your lifestyle.

Common for many people, myself included, is lifestyle inflation where you spend more as you earn more. That was me for my early adult life and I’m embarrassed to say continued until about 5 years ago. Everyone I knew followed the tune of you earned it so you can spend it. And while that is true, it is not the best attitude to have if you are purposely looking at your future which many people are not.

I don’t remember if I heard this from ChooseFI, JLCollins or another personal finance site but it was generally this:

For those that don’t want to save and think they need to spend all they earn – consider this:
I AM spending all I earn – I’m just not spending it on the same things you are. I’m spending all I earn on purchasing my freedom! You’re buying things that will break or soon be discarded or give short term escape from time at hand. What I’m buying are things that increase in value over time compounding consistently until I can make the best purchase for me which is freedom! Freedom to work where I want to and when I want to if at all. Volunteer or help others – the choice will be mine!

The technique I used to postpone lifestyle inflation and it worked well was to keep our income the same in our budget software even as we both got raises and promotions. We used YNAB for our budgeting or spending plan depending on how you want to look at it. For several years, I kept our monthly income listed in the budget the same as it had been. For example, say we had a combined income of $10,000 per month and then one of us got a promotion and the other got a raise. Now our income would be $11,000 per month but I left it as $10,000 in the budget. This made it much easier to continue budgeting with the same mindset of $10,000 monthly income. This helped to prevent the common change of how to divide up the extra $1,000 each month. I know many will say just add that extra $1,000 each month to your savings and that was what happened behind the scenes but it was not there on the front end to see. There’s something about not seeing that money in the budget that made it easier not to spend it. Easier not think oh well we have that extra $1K this month so it’s ok if we go overboard a little on this or that. Staying with that continuous $10K budget works wonders.

Our budget includes a monthly savings rate of around 20-30 percent. Now that extra $1K just goes straight to our savings and investments and our actual savings rate inflates instead of our lifestyle! Give it a try!