How to avoid lifestyle inflation - Well kind of...

We've all heard about the rising inflation prices and how an apple now costs 5% - 10% more than it used to a few months back. In that same vein, something called lifestyle inflation, often self-imposed is something that is causing some major financial freedom roadblocks for people. This can especially be scary when you are younger and you do not notice it creep on you. I say kind of because today I will be using our new living situation as an example.

What is lifestyle inflation?

This blog is a combination of good ideas and us making mistakes to help you learn from them. Well, today I will present you with a scenario, our current scenario and you can tell us if we are making a good or bad choice when it comes to lifestyle inflation. Let's peel it back. Firstly, lifestyle inflation is not what we've recently experienced with all the prices rising and my coffee went from $4 to $5.50... wow what a dilemma. In all seriousness, we are all feeling the pinch and it is frustrating.

However, what I want to talk about today is the other type of inflation. The nasty little gremlin that sits in your attic and eats all your investments. You need to stop feeding that thing. In its most basic form, it looks like you or your partner earning more money. Let's say you get a handy 10% raise and instead of taking that hard-earned money and building your fortress of wealth in the form of some sort of investment, you decide to subscribe to some sort of monthly subscription.

For me, that would probably be something to do with watches... I have recently started loving them again, thanks to my brother-in-law. Don't even look at them, they are expensive and they are a dark money pit. You've been warned. Anyways I digress. So essentially you take the extra money you make and you spend it immediately. And to be honest, it's usually not all at once, but rather it's an incremental thing. It might be four subscriptions over a year and all of a sudden you have no extra money coming in. Pretty basic right?

Why it can be scary

Lifestyle inflation can be scary, because of well the total cost of that decision. If you look at $20 a month, it does not seem like a lot. How about $4.4k? See at 10% return that $20 could be 4.4k in ten years. Now overall again that might not seem like a lot. But imagine you have five of these? How much money will be leaking down your floorboards and into that nasty gremlin's mouth.

I think we can all agree, that we'd rather leave those nasty gremlins down in the basement or better yet starve them out with a bit of perseverance and grit.

Our situation - Good or bad?

I've always aimed to be super transparent when it comes to our blog. In the past five years of our marriage, we've moved six times. We are moving at the end of the month again. Please make it stop.

It's definitely not all bad. Actually, in terms of lifestyle, it will be a massive upgrade. We are moving into a lovely neighbourhood with new shops, within walking distance from the beach etc. The main thing is, we have to pay more per month in rent which is a large expense and will, unfortunately, dive into our investments. Initially at least.

Now comes the question, was this a good decision? I guess the answer like a lot of things is it depends. For us the way we look at it, we've never not either shared a home or been attached to a house (if you live in Auckland I can hear you yelling at your screen in agreement) so we made a list of things we wanted in this place. We've been very fortunate and it is exactly what we wanted. So we are happy with it because we can really live here indefinitely. Meaning anything we earn over and above we can continue to invest.

A couple of things are changing in the next year and a bit for us, so we will be back to our goal investment amount within the year according to my current calculations. Initially, it is an investment and I've had to take out a little money (was not a big fan of this) to get all of the bond money in etc.

As you know I aim to be as transparent as possible and show you the things we do. I will say this before I show you what to do down below. The longer you can hold out, the more you can invest, and the faster your time becomes yours. That ultimately is the goal. The choice to do what you want, when you want.

Ways to combat it

I've seen it creep into our lives in our marriage and the main reason for this when it comes down to it for us is children. We have two beautiful kids that we totally adore.

It is however something that you need to consider when you want to start a family. Kids are wonderful but they need space. A.k.a. the reason, we're moving again. The best advice I can give you. Keep the big expenses at bay for as long as possible. What do I mean by this? Move into an affordable place, especially when you are younger or a younger couple. Don't buy things that cost you lots of money over a long period of time, cars, boats or things you can't afford. No, you don't need a new ute 'because you need to help a friend move'

The key is to keep the big-ticket items at bay for as long as possible. Mr Money moustache made an amazing post about how quickly you can retire depending on how much of your income you can invest.

That's going to do it! All the best, we are excited about the bigger space. But I am annoyed at the lifestyle inflation.

Mk