Lifestyle inflation is a term used when people of all ages and income levels have a tendency to adapt quickly to changes in their lives and return to a baseline level of happiness, regardless of how many good or bad things may have happened to them.  Put another way, if we set our sights on a new item, let’s say an expensive watch or even a new car; we think that this purchase will make us happier in some way.  The reality is that the initial happiness boost from buying something is usually short-lived.  As we settle back into our life, we find that we really are no happier with the new car than we would have been without it.  This is called “hedonic adaptation” which means we are running toward something, (material things we wish to buy), but never making real forward progress in terms of our personal happiness.

Money must be viewed as a tool not an emotion since it should provide for your basic needs and your life priorities.  Impulse buys, subscriptions and memberships you never use and forget about but keep paying for, and every convenience that you pay for in the moment that you didn’t really need, all add up to increased personal inflation costs.

Christine’s Tip:

Consider looking at your life today compared to what it looked like a few years ago or even when you were first starting out on your own.   What do you spend your money on now, that you would have never spent on years ago?  Have these new expenditures improved your life and made it better or are there some items that you could have cut out to save more?

Lifestyle inflation usually disguises itself as needs that we convince ourselves is not a want, but rather a necessity.  Let me give you an example.  Are you the type of person who feels they must have a new car every few years – because if so, I must tell you that a brand new car is not a need.   A cheaper, used car or even your current 20-year-old car will get you to work just as effectively as that nice new car and repairs on your old car will cost a lot less than a brand new vehicle.  A new car is a want, masquerading as a need, and for those that replace their vehicles on a regular basis, this I’m afraid, is a textbook lifestyle inflation example.