Lifestyle inflation is the main obstacle to paying off debt, growing a significant net worth, retiring early or on time, and just having baseline financial security. The idea of “keeping up with the Joneses” negatively impacts many folks without them recognizing what is happening. That said, lifestyle inflation is not all bad. There are times to embrace it intentionally to improve your life, just like there are times to recognize that inflating your lifestyle in a certain way will not add value.
First, to address the folks that argue that lifestyle inflation has not had a huge impact on the cost of our lives: How much did you pay for your smartphone in 2005? Or your tablet? Or your ear buds? What about your Netflix subscription in 2000? Or your cell phone in 1990? Your personal computer in 1980? Your microwave in 1945? Your truck in 1900?
Some lifestyle inflation happens no matter what, requiring you to get onboard. The majority of individuals in the world now have a smartphone since they are a requirement for businesses of all types. Whether you are an attorney taking client calls or a tuk-tuk driver using maps or a rideshare app, you need a smartphone to operate your business. Even in countries where refurbished smartphones are the norm and average smartphone costs are a third of what they are in North America, smartphones still average a couple hundred U.S. dollars. This is the case despite the fact that the global adjusted net per capita income is a little less than $10,000 a year. The average person has less than $10k in annual income and owns a smartphone.
Everyone needs to accept a certain level of lifestyle inflation. Most of us need a smartphone to survive. I often complain that I wish I could exist with a simple cell phone that just does calls and texts, except I can no longer imagine living without Google Maps or carting a separate phone and camera on vacation. Most of us have some app that we can no longer imagine surviving without after years of learned dependability on smartphones. That is fine. Smartphones are a useful tool of the modern world.
The difference between lifestyle inflation that can torpedo your financial success and lifestyle inflation that may provide additional joy and efficiency to your life is whether the lifestyle inflation is intentional. I actually took the time to ask myself if having a smartphone added enough value to my life to make owning one worth it. I decided it did. (I ask myself the same question when considering upgrades, too.) Most folks will decide to keep their smartphones if they make the same consideration, but at least they did not blindly accept the lifestyle inflation without considering the value added.
Learning to Question Lifestyle Inflation
Smartphones are globally ubiquitous, but many other products that we now consider essential are actually abnormal in different parts of the world. If you have lived in different cities in the United States, you probably know that having a washer and dryer in-unit is standard in some locations, having a washer and dryer in the same building is standard in other places, and some locations require you to visit the nearest laundromat. Take this example globally, and you see more variance. Most eastern European countries have washers but still air dry clothing. The dryer is viewed as an unnecessary luxury.
I am not suggesting that you get rid of your dryer or opt not to replace it when the time comes. I am suggesting you take stock of what is actually essential to your life, what modern conveniences add value, and which ones you have just because everyone else does. It is okay to love and appreciate your dryer. We actually just bought a new one—as a runner and a rugby player, having an in-unit washer and dryer (unlike our last place) is life-changing. It decreases our mental load surrounding when to do washes prior to races and matches and makes planning easier.
Looking at technology, our modern lifestyle inflation becomes a bit more apparent. I have never met someone who needs a tablet and laptop. I have met people who enjoy having both and benefit from efficiencies from having both. But I have yet to see a need for owning both. Unfortunately, I have met countless individuals who are currently in debt while owning both a tablet and a laptop. That is a problem. You can convince me that you need a laptop or tablet to run a business and get out of debt. But you do not need both, and you should pay off your debt, build an emergency fund, and start contributing to a 401(k) or IRA before you own both a tablet and a laptop.
We enjoy a lot of modern luxuries that we consider needs. The most efficient blender, the expensive sectional, the Roomba, the bougie ice machines people seem to now enjoy. None of these are necessities. Each one leads to a tiny bit of lifestyle inflation.
So how do you prevent lifestyle inflation from gradually doubling your cost of living without even noticing? Make the effort to pay attention to the new items being presented as necessities. Question whether you need that new luxury, whether it adds value to your life.
Sometimes this is easier when you quantify it. Pretend you are considering whether to buy a tablet. A tablet can last about eight years, on average. Their costs vary, but you can get a good tablet for about $300. Using CapEx logic, the tablet costs you about $37.50 each year. That feels relatively inexpensive. However, if you want to incorporate the tablet into your lifestyle, you need to ensure you can afford to replace it, and enjoy it (or whatever piece of technology replaces it down the road) throughout retirement. You can do this by making sure you increase your Financial Independence (FI) Number adequately to account for purchasing tablets periodically. Assuming a 4% withdrawal rate, this means multiplying $37.50 × 25 so you never have to withdraw on the principal tablet funding. Ultimately, owning a tablet raises your FI Number by $937.50.
That may be worth it to you, and it may not. We bought a tablet recently, an intentional lifestyle inflation choice. However, I can earn $937.50 in less than two days of work at my day job. The consideration may be different for you. If it would take five days to earn enough to fund a tablet, you might pass. Or you may pass if you could earn the money in an hour but do not value a tablet enough to spend any time to fund it!
You can approach any potential purchase in a similar manner. Calculate the annual cost of an expense. If the expense is something like a membership, this should be easy. If the expense is an item that will last multiple years, use a CapEx approach to consider the annual cost of that item by dividing its total cost by the number of years it is expected to work. Then multiply the annual cost by 25 to learn what it would cost to sustain the expense in perpetuity. Once you calculate that number, you can decide if raising your FI Number by that amount is worth it to you.
Avoiding Lifestyle Inflation You Do Not Value
While the calculation can inform you whether a certain new expense is worthwhile enough to inflate your lifestyle for it, external pressure can still make saying no to lifestyle inflation difficult. When your peers all adopt small additional expenses, an external pressure exists to adopt them as well. This pressure can exist on expenses from buying more expensive concert seats that do not add much enjoyment to you spending twice the price to buy a new sofa set with the same fancy material as your friend’s sofa even though the standard material would be perfectly comfortable.
Our communities and peers have great influence on what we deem as essential. In short, if you are only buying something because “everyone has it” or “everyone is going,” take a moment to consider whether the purchase is valuable to you. Your financial values are the only ones that should influence your purchasing decisions.
Embracing Lifestyle Inflation When It Adds Value
While letting lifestyle inflation happen without questioning it will take you to a bad place financially, some lifestyle inflation can improve your life. If you refused all lifestyle inflation, you still would not have a smartphone (assuming you were born before 2007), and that seems unlikely since most of our readers read these articles on their smartphones. (If you are one of the laptop readers instead, same!)
Some lifestyle inflation is good and actually improves our life. Embrace lifestyle inflation when it increases your joy in life—just embrace it deliberately. Having a Roomba still feels like magic, and I absolutely love it. It takes away the time required to sweep and vacuum floors, and it also eliminates the mental load of needing to track when I would need to sweep and vacuum the floors. Double win! This is an element of lifestyle inflation that makes a big difference in my life. It also is likely net positive financially since I can earn money analyzing some data rather than sweeping the floors.
If you are just starting to consider whether certain expenses are valuable sources of lifestyle inflation versus spending you could survive without, this can feel overwhelming. However, areas of spending that you already prioritize likely coincide with areas that you may want to consider potentially valuable lifestyle inflation. For example, I spend a lot of money on travel and my rugby hobby/health. This means that I may appreciate lifestyle inflation related to travel or rugby/health more than other areas of life. This has proven true: Living the lounge life to make travel easier has been life-changing. Spending the money on a monthly sports massage is considered a luxury item by many folks who have a tablet and laptop, but I have been paying for sports massages since I made $36k despite just purchasing a tablet last year.
On the other hand, I know a lot of folks who love spending large amounts of money on sneakers or clothing. This does not appeal to me, so I do not even have a separate clothing budget. I spend sparingly enough that clothing wraps into my monthly “miscellaneous” expenses. I recently used some of that money to replace my tank tops after repeated (and admittedly, deserved) comments from Patrick that my tank tops were quite literally ripped on the sides. Someone who enjoys fashion would be horrified by the state of my now retired tank tops. They may even decide that buying nicer clothing is a piece of lifestyle inflation for them. If fashion is a spending priority for them, that is great! They can forgo the travel luxuries I purchase and buy a $250 shirt. We all have different priorities.
Any of these priorities are fine, but adopting all of them can be problematic. By ensuring that you deliberately consider any potential lifestyle inflation, you decrease the probability of absorbing lifestyle inflation that lacks value for you. Checking in with yourself prevents the negative effects of lifestyle inflation so you can enjoy the most valuable innovations that actually improve your life.
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