One of the best and worst things that ever happened to me was that I had a five year stretch of massive raises in income. During this time, I chose to not live off of my old income, and instead buy a ton of stuff.
A year and a half ago, I found myself with debt up to my eyeballs (about $120,000 including my car loans, student loans, and credit card debt), and I decided that enough was enough. I am only a few short months from paying it all off, and I will never go back!
If you are in the same situation as I was, you can turn the tide and reverse lifestyle inflation. Here is how:
Become Detached From Your Stuff:
The bottom line is: less stuff = less stress = more freedom.
We must develop an attitude about our stuff that leaves us unattached to it. Remember when we were young college students with only a box of stuff? Remember how free that felt? Developing this “old” attitude will make it so much easier to de-clutter our current homes when we decide to reverse lifestyle inflation.
Can You Detach? If So, Sell It:
Start slow. Get rid of one item each day. Start with an old fork; anything works. Sell, donate, or trash one item every day for three months. You will be shocked at the results.
Here’s what I did:
I sold my cars, walk more, and will be taking up bike riding soon as a means of transportation.
Do you have a car loan? Consider trading it in and buying a “beater”. Your car loan is one of the largest wealth killers you have. How bad do you want to get out of debt? Your car is first on the list to go.
Sell your items online.
Get on eBay, Craigslist, or your local town website and sell any item you have not touched for six months. I sold a ton of stuff and cleared out so many rooms that I could move into a house with 1000 less square feet if I chose! I do not miss one item that I sold. If you miss it that much, you can buy another!
Combat Lifestyle Inflation with a Budget and Stick With It:
You have heard it a million times, so here it is again: Without a budget that you strictly adhere to you are not going to deflate your lifestyle. I write out a budget monthly with my wife and give every dollar a name. I also do not use credit cards and pay cash only for everything using an envelope system.
You have probably read scores of blogs that have said the same thing as I am here. What I am getting at is that reversing lifestyle inflation is a paradigm shift in our behavior. We must disengage from the attitude that owning things will make us happy. By starting slowly (one thing at a time), we can reverse our behavior and start building new, better habits.
It took me about 3 months to sell my stuff, get on a budget that worked, and regulate my envelopes. Habits take time, so you must be patient. But understand this: anyone can reverse lifestyle inflation…anyone. How badly do you want it?
MMD Note: Thanks Tony for this post. A lot of people think that managing money is all about making more and covering their bills. But you’ve identified a very subtle and significant part of the battle that is just as important: How you think about your money and spending. For anyone who would like some help with their budget, you can download it from my Excel Budget Template post here.
Readers – How will you reverse lifestyle inflation in your life?
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Image courtesy of ddpavumba / FreeDigitalPhotos.net
Sounds like somebody had (or should) read “Your Money or Your Life”. One bit of caution I would throw in is trading out your car for a “beater”… if your beater craps out on you to the point where it costs you more to fix it than to make car payments it is not a good idea. Look for a gently used bargain, not a beater.
We have always struggled with that – leery of car loans, but our cheap cars have always cost a bomb in maintenance and repairs. Even our relatively new (14 years, at least new by NZ standards) used car is killing us at the moment on that front. It seriously is almost enough to make me consider a small loan for a much newer used car next time.
Love the book! And I expected a lot of people to comment on the “beater” for sure. I definitely rolled the dice with the car. I don’t put a lot of miles on it, so I am praying it lasts for 2 years. In the meantime I am putting a “car payment” of 300/month in a savings account. So far, so good!
I think we’ve done pretty well in avoiding lifestyle inflation – probably the most egregious example is that we now have pay TV (his choice not mine!) I wouldn’t miss it but he would. And with that, we also have MySky so we can record shows/movies and watch them whenever, skipping the ads – definitely a first world privilege.
I should check out MySky…never heard of it! Thanks for the comment!
A great article. However, I disagree with you on the car loan part. I don’t think a car loan is the first thing on the list to go. Nowdays, if you have a decent credit score, banks offer pretty low interest rates. In my opinion, the first thing to go is your high interest credit cards. If you have a high interest car loan thats a different story.
Fair enough. My basic goal was : OWE BANKS NOTHING. All banks. Period. I also went completely polar: I had an $800/month car payment.
$800! What kind of wheels were you driving around? It must have been nice whatever it was! 🙂
I’m guilty of this one also. We refinanced our car loan at 2% and I have no interest in paying it off early. In fact, the money I was going to use to pay off this loan went into my dividend stock fund which is paying out a 4% dividend payment on top of the market returns. So between the two options I’m essentially netting 4 – 2 = 2%
But Tony’s point wasn’t concerning technical jargon. I definitely agree with him that we should strive in some way to free ourselves as much as possible from banks and debt.
Good post Tony! We do many of these things and have just learned to be content with what we have. We do the cash envelope system and have done it so long that I think it would be difficult to change even though I am confident we’d not overspend.
I am with you John; the cash envelope system is the way to go. I am not sure I can ever go back! I would like to design my own wallet someday, though…this Dave Ramsey on is a little too bulky…
I think you hit the nail on the head with not being attached to “stuff”. It is stuff that causes lifestyle inflation and really most of the time we don’t need it, so why bother getting poor for it?
It can be so hard reversing lifestyle inflation. Best bet is to avoid it all together.
Thanks, Glen! Hindsight is definitely 20/20…I have always learned my most important lessons the VERY hard way…
I think it’s completely doable to reverse lifestyle inflation, but a big motivator is to have a big goal that you want to reach. Many people reverse it with debt payoff goals.
CT, It is true that goals are the key place to start….then we break them down into actionable steps. Thanks for this!
I agree. My goal of early retirement has caused me to rethink many purchases and projects I once thought I would take on. Now I realize none of them were really as important as what I’m actually after – financial freedom.
We have succumbed to lifestyle inflation, but we always make sure we can afford everything. It would be hard for us to not to succumb to lifestyle inflation as just a couple of years ago we were scraping by and not as happy.
Michelle…It is very normal to treat ourselves once our salary jumps up to levels that are more than we are used to. Just keep everything in balance and in check and you can have it all!
I agree. As long as your goals are being met and your tastes are in moderation, I don’t think there’s anything wrong with enjoying the fruits of your labor.
Love your posts always, Tony, here and there and everywhere! Yes to the envelope system and we have a change jar too for certain extravagances. I love the ruthlessness with which you attack financial issues. Carry on! says the Hoombah!
Thanks for following me around the sphere, CJ! I have to get a change jar….it’s been a while!
Awesome advice! Lifestyle inflation is one of the biggest wealth killers. It is hard to avoid but definitely possible if you put your mind to it.
Thanks for the comment, Nick!
Thanks for the comment, Nick! Nice to see your posts as well…
It is very hard to avoid because to some degree we earn our money so that we can enjoy it. But the definition of “enjoying” our money can carry varying degrees of meaning. I think the best thing to do is really step outside your own comfort zone and ask yourself “do I really need all this stuff?” or more importantly “is all this stuff really what makes me happy?” My belief is that when people do this, they’ll find that owning things doesn’t really do it for them. Relationships and the memories you build with people are what really make your days.
“We must disengage from the attitude that owning things will make us happy. By starting slowly (one thing at a time), we can reverse our behavior and start building new, better habits.” So true!! We fill our lives up with clutter and once we get rid of it – we’re like why didn’t I do this sooner!! I tell my girls (and myself too) to slow down and think about what will really make them happy. Money, to me, is the pursuit of happiness – to spend money on the things that matter most – memorable vacation with my family, charitable causes, little gifts for my girls – things that fill me or others with joy. Money is not the pursuit of more stuff for me.
A thousand times agreed! Money by itself is useless. The only thing it is really good for are the things you can do with it. And like you, I believe that it all comes back to how you use it to enrich the time you have with your family, loved ones, etc.
Tony, that was a great post! As someone who’s had his own income increase three fold over time, fending off lifestyle inflation has been a constant and seductive battle. But we always try to keep things in moderation and not let the pendulum swing too far out of balance. Not only do I find that kind of lifestyle to be less stressful, but it also puts you in the best position to save more towards your goals without any complication.
I’ve got to say: The older I get, the more I realize that I just don’t need a lot of stuff. Instead, I’d rather use my money in other ways. I’d rather use it to give my kids a great education, create special memories on vacation, put them in sports, etc. And for my wife and I, money means the chance to retire early and enjoy our lives. Those things are far more valuable than any material objects I can think of.
Great post, Tony. We have a cash spending system. We allot ourselves a certain amount of money for spending for the week. When it’s gone, it’s gone. I just typed a paragraph and deleted because I realize it is it’s own post and not a comment! Let’s just say that we realized that paying off debt is sexy. Changing our spending and living a simple lifestyle has made our marriage even better. 15 years and happier than ever!
Thank you , Tammy! I am almost at 10 years myself, but the first one that will be debt free!
It’s great to hear about a couple using money to strengthen their marriage rather than letting it come between them.
It’s amazing how quickly you’ve been able to pay down your debt. I have been pretty money concious from a young age so I have never been in that type of situation. When people realize they don’t need to impress anyone or “keep up with joneses” then they can prevent lifestyle inflation.
Thanks, Alexa. I really went to town on the debt. When I look back I cannot believe I did it so fast, but I wanted to be done!!
As some of the other comments pointed out, some lifestyle inflation is almost unavoidable. I went to college so I wouldn’t have to share a crappy apartment with two roommates and eat better than top ramen. However, it does get out of control when you feel like you need or deserve everything at once and put it all on credit.
Changing a lifestyle and giving up luxury is quite a sacrifice. But we also have to remember that life doesn’t get easier everyday and we should know which things should be given more prioritization.
I’ve been working at becoming more detached from my stuff. Though I’ve had success (we are living in a 500 sq ft condo!), I still get very attached to items like stuffed toys and books.