Lifestyle inflation

Originally published 2021-06-28; last updated 2021-07-12

Typically, when income increases, so do expenses. Some increased expenses genuinely improve your life, but many do not. Therefore, it is common for your expenses to increase at a faster rate than your quality of life. This process is called lifestyle inflation. You should try to avoid it, because it causes two problems:

  1. Lifestyle inflation needlessly delays financial independence, both by slowing the growth of your savings and by increasing the amount you will ultimately need to meet ongoing expenses. (Note: all increased spending slows growth and increases your ultimate needs, but only some of this spending improves your life.)
  2. Lifestyle inflation makes it hard to deprioritize income. To maintain a high level of spending, you need to keep earning a high income. This could mean working more hours than you would otherwise like to, or staying in a high-paying job that you don’t enjoy.

Causes of lifestyle inflation:

  • There are plenty of environmental cues to add expenses, but almost none to remove them. (People systematically overlook subtractive changes.)
  • Many expenses provide a genuine short-term boost in pleasure, but the pleasure fades quickly as it becomes your new default. (The hedonic treadmill.)
  • It can be hard to tell whether a given expense will genuinely improve your life. (Lifestyle inflation is, by definition, a symptom of not understanding which forms of spending make you happy. Lack of understanding in this area signals lack of understanding in other areas of life that affect your happiness.)
  • Spending money feels strangely good—like an expression of agency.

To minimize lifestyle inflation:

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