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Optimal Finance Daily - Financial Independence and Money Advice
3483: [Part 1] Lifestyle Inflation Is Okay - Just Let It Happen On Your Terms by Kevin of Financial Panther
00:08:55
Kevin challenges the idea that lifestyle inflation is a personal failure
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this is optimal finance Daily Lifestyle Inflation is okay, Just let it happen on Your Terms Part 1 by Kevin of financialpanther.com Lifestyle Inflation is what happens when you earn more money and in turn spend more money. It's a natural part of life, but one that is often viewed as a negative to wealth building. And it's true. If your income grows but you spend all of it, you'll never be able to build wealth in the financial independence world. Lifestyle inflation is often viewed as a sort of character flaw. It's how I thought of it for a long time. Lifestyle inflation only happened to people who were too weak to control their spending urges. The way I saw it, If I was 26 years old and spending 2 to $3,000 per month, I should be able to do that for the rest of my life. If I couldn't, it was because I was too weak and consumeristic. For most of my 20s and 30s, I kept up with what I viewed as this positive character trait. Even though I made six figures most years, I never increased my spending from what it was when I was a student. When my wife finished her residency and we saw a dramatic increase in our household income, we still generally kept our spending in the same two to $3,000 per month range. It wasn't until we were 34 years old that we finally gave ourselves permission to increase our spending. We spent nearly a decade living dramatically below our means. After so many years of living like students, we finally wanted more. We bought a house that's much bigger and nicer than the house we used to live in. It's in one of the best neighborhoods in the city, too. But in turn, our living expenses have gone way up. Lifestyle inflation hit us, and it hit us hard. So what does this say about me? Was it a weakness of character? Poor values where I value things that don't really matter? I used to judge people for falling into the lifestyle inflation trap, and here I am doing the same thing. I'm going to have to work a lot harder to pay for all the things we added to our life. Like most of how I think about life, my views on lifestyle inflation have evolved as I've gotten older. I always thought of lifestyle inflation as something that needs to be avoided at all costs. But it doesn't have to be. It's going to happen, and it's okay to embrace it. The key is to embrace it on your terms, when you're ready for it. My history of Lifestyle Inflation I've lived on a lot less than I've earned for most or all of my adult Life. From age 18 to 26, I was a student and spent as much as a student could, which is to say not very much. I never made more than $20,000 a year during that stretch, so I couldn't spend much by necessity. I saw a huge increase in my income when I graduated and started my first job. And yet, even with this huge increase in my income, I still spent about what I spent when I was a student. My share of the rent was never more than $600 or so per month. I didn't spend much on travel or clothes. I didn't own a car, so I got everywhere by bike or mass transit. I had one year where I lived in a luxury apartment building, and I only did it because I took over someone's lease after they paid me to take it over. You might think that moving into our first house was a lifestyle upgrade, but it really wasn't. Our mortgage payment was less than our rent compared to our income. We basically paid nothing. Our mortgage was only 3% of our monthly income. At one point, we rented out a room on Airbnb, too. So most months we effectively paid nothing to live there. The crazy thing is that the value of our house was less than what we made in an entire year. And even when my wife suggested we upgrade to a better house, I still kept pushing that maybe we could wait it out another five or 10 years. From age 26 to age 34, my wife and I kept pretty much the same lifestyle as we had when we were students. That's almost a decade of saving money and spending very little relative to what we were making. Reasons to Delay Lifestyle Inflation it's probably extreme to live like a student for nearly a decade. And while you don't need to go to the extreme that I went through, there are good reasons to consider delaying lifestyle inflation. Hear those in tomorrow's episode. You just listened to part one of the post titled Lifestyle Inflation is okay, Just let it happen on your terms. By kevin of financialpanther.com the new year
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admit guys, I almost never think about inflation, whether it be lifestyle inflation or real world inflation. I get that it's a thing, and lifestyle inflation on top of the rising costs of goods can be a dangerous combination. However, your personal rate of inflation can be quite low if you don't operate like a typical consumer. One way I've managed this is by not replacing things unless they're actually broken, and not buying things new as much as possible. So, for example, I've had my bedside table for almost 20 years now. Yep, it's the same one my mom purchased from Target when I was 16 years old. It's moved everywhere with me and it's still going strong. It has actually never crossed my mind to upgrade or replace it because it works perfectly fine. I imagine that's the bedside table I'll have 20 years from now as well, and I'm perfectly happy with that. I also find it amazing to consider my car purchases. My first car, purchased in 2004 when I was 17, was a 1998 Honda Civic for $7,000. The car I have now is a 2010 Mazda 3, purchased in 2018 for $6,000. Both cars had similar mileage when I bought them and were good, reliable cars. It still blows my mind that I paid more for a car at 17 than I did in my 30s, but it just goes to show that we have more control over our personal inflation rates than we typically acknowledge. I think it's always best to focus on the things we can control, so while we can't control overall inflation, we can control our own spending habits. Well, that should do it for today. Have a happy rest of your day and a great weekend and I'll see you tomorrow where we'll finish up this post and where your optimal life awaits.