Avoiding The Temptation of Lifestyle Inflation

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6988181354_9384f994ebIt’s that time of the year! Yes, tax time but I’m talking about performance reviews at work.

While performance reviews can be a major pain in the you know what, I’m sure we all look forward to them for two reasons: 1) possible promotions and 2) yearly raises. I recently went over my performance review with my boss at work. Since I been in my current position for less than a year, I wasn’t expecting much of a raise and just like I expected, I didn’t get much (even though I got a pretty stellar review, yay!). I received just about a 2% raise, along with a bonus, which is pretty sub-par but again, I’ve been with the company less than a year.

This leads me to my topic of discussion today – when you get a raise, is it OK to increase your spending?

Lifestyle inflation is tricky. On one hand, you’ve worked so hard to earn that extra money, don’t you deserve to live a little? On the other hand, if you’re making more, shouldn’t you save more? Why do you need to “live better” just because you make more now?

In 2013, my income increased significantly. I accepted a position at a new company, with a better title, bigger responsibility, and more money…. considerably more money. I saw my income increase by 30%. While money wasn’t the only reason I decided to switch jobs, it was certainly a large factor. When I got my first paycheck, I couldn’t help by think “damn, what should I buy!?” Luckily, the frugal side of my brain kicked in before I could spend it.

Since then, I’ve inflated my lifestyle very minimally, which means I’m saving at a much faster rate. Here’s why:

I was already happy with the lifestyle I was living. Before I switched jobs, I was already happy with the lifestyle I was leading. I lived very comfortably in a decent apartment, spent quality time with family and friends, and was already out of debt. Spending more money wasn’t going to make my life any better. I stayed in the same apartment, continued to occasionally go out for drinks, and lived my life pretty much the same. I was still happy and my bank account even happier.

I have longer term, financial goals. One of the biggest reason I didn’t go out and splurge on fancy things was because I have longer terms goals. I had everything I wanted in the short term. My goal was to save up for the future. Things like longer term traveling and purchasing property were, and still is, important to me. I didn’t want to waste my pay raise on frivolous items like new clothes that would only make me happy for a very short period of time.

I can’t buy happiness. I truly believe that money can’t buy happiness. I think people get confused between true happiness and the illusion of it. Yes, it can make your life a whole lot easier and it’s a means to finding happy but it’s not the root cause of happiness (disagree with me if you want but I’m a firm believe in this!). I certainly was glad to be earning more but I don’t want to let that consume me. Money is important to me in the sense that it gives me security but my goal in life isn’t to swim in cash.

On the flip side, I hate when people say that you should act like nothing has changed if you get a pay raise. You’ve earned it and it’s OK to treat yourself a little. Just don’t go spending it all at once.

What are your thoughts on lifestyle inflation?


  1. says

    I agree with everything here. At this point, if I got a raise, the extra money I would be making would go toward debt. After that, I’m also saving for long term goals. I do agree that it doesn’t hurt to treat yourself once in a while. It’s all about making responsible financial decisions.

  2. says

    I like to use the term lifestyle increase instead of lifestyle inflation. Inflation is mindless and low-value and increase is deliberate and high-value. I’d say for a small increase like a yearly bump I would try to not increase lifestyle (although with general economic inflation you may have to i.e. rent or groceries), and for a large raise that comes with changing jobs, for instance, I would likely try to choose some ways to increase my lifestyle.

    • Connie @ Savvy With Saving says

      That’s a great point and I totally agree. Yearly raises aren’t enough to warrant a lifestyle increase.

  3. says

    I’m really lucky, my current employer actually allows me to set aside money from my salary, so every time I get a salary increase, I choose not to increase my after-tax income. Saves the possibility of a lifestyle increase.
    Instead, I try to invest the remainder. It’s the only way to retire a millionaire!


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