More Money, More Problems? The Dangers of Lifestyle Inflation—and How to Avoid It

Marisa Torrieri
Posted

lifestyle inflationMargo Schlossberg never considered herself to be much of an indulgent spender.

Even though there was plenty of opportunity to splurge on fine dining and high-end beauty treatments in the upper-middle-class Washington, D.C., suburb of Reston, Va., where she lives, she never felt particularly tempted to partake.

That is, until the 44-year-old marketing professional landed a hefty raise that made her paycheck fatter by $2,000 more per month—which had an almost immediate effect on her spending.

“I started indulging more in the little things,” Schlossberg says. “I got more manicures and pedicures, went out to eat a lot more and splurged on fancy drinks.” On top of that, she took a pricey dream trip to Sri Lanka.

Schlossberg’s rationale? Her workload had doubled and she was putting in an intense, ten-hour workday while also enduring a taxing, two-hour commute. So she felt deserving of the good life—or at least a better one.

While Schlossberg’s newfound spending didn’t put her in the poorhouse, it didn’t get her ahead, either. Her savings often fluctuated due to her splurging, and she never took the time to rejigger her budget to see how her added income could be put to better use. “I didn’t run into money trouble, but I should have known better,” she says. “But, hey, I’m human.”

Sound familiar?

Schlossberg certainly isn’t the only person guilty of using a raise as an excuse to bump up her spending. In fact, there’s a popular term for this common story line: lifestyle inflation, or the idea that as you make more, you spend more.

This, in turn, can make you feel a bit like a hamster on a wheel when it comes to your money: You have to keep running at full speed just to keep up with your new bills and satisfy your spending urges—without making any progress on your financial goals.

RELATED: Secrets of a Psychologist: How to Train Your Brain to Make Smarter Money Moves

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  • thepixinator

    I can totally relate to this. When I was unemployed and underemployed, I spent nothing, ever, so it was easy to know where my money went. Now that I have a somewhat decent-paying job, I never seem to have enough money beyond bills and savings (at least I have the 401k and savings account deposits set up to occur automatically, so I don’t have to think about them). So, I look through my online banking account, see these little $25, $40 expenses, $60 cash withdrawals and think “That adds up to $600?!??” And yes, it does. It’s scary how quickly a person can blow through money they never even had before and not notice it.

    • V

      I found that once I started making a decent wage, that I have gotten “cheaper”! When I was making less money, I spent more freely. Now, because I am determined not to go back to being broke, I find myself weighing my costs and spending much more diligently.
      It is nice to have more disposable income, and I do find myself spending a bit more here or there, but I certainly am not frivolous with it!

  • Leighann

    I hope I have the self control to stick to these tips!! I miss my college days when I could have fun without spending a small fortune. I need to get back to that!

  • loles

    This has definitely happened to me, especially in the last year. I find myself getting off track at least one or twice a year. When that happens I go back to a cash-only diet and the enveloping method, and it always sobers me up. So much of our social selves seems to be tied to things, that it’s easy to fall in that trap. I am preparing to be very mindful of my spending now that the holidays are near, because gifts for my family and godchildren seem to be my financial kryptonite.

  • Ramakilla

    That’s why I like YNAB. Keeps me honest about where I’m spending my raises. I plan for it.