Lifestyle Inflation Hurts Saving and Giving

Lifestyle inflation sneaks up on you like a lawn weed, slowly spreading but blending in with its surroundings. Because spending goes up proportional to income, it usually goes unnoticed and unchecked. You might even feel like you’re responsibly living on a budget if there’s money left over.

It’s a million little things that add up over time. In some cases, higher income causes us to buy things we don’t really need. In other cases, such as insurance and utilities, we rarely question the cost. And often we don’t consider the alternatives to our expensive habits and assumptions.

When I think back to when my wife and I were newlyweds with combined household income of $65,000 a year, I don’t remember struggling to meet our basic needs. In fact, we enjoyed many of the same luxuries we have today, including a nice house, Friday night dinners out and family vacations. Life wasn’t all that different. So it perplexes me sometimes that we haven’t saved more over the past 15 years, considering our household income has increased way beyond what we ever expected. Sure, there are major new expenses like childcare, and tithing and taxes have grown proportionally to income, but there has also been lifestyle inflation along the way.

At the end of every year when I review our family budget, I always look for places to rein in spending and practice frugality. Usually, that means small tweaks here and there, but not a drastic overhaul.

While initially researching financial independence, I took a hard look at every budget line item. Over the course of three months, I methodically cut expenses until I couldn’t find any more fat to trim. The result was astounding: I cut $1,000 in spending from our monthly budget. And here’s the amazing thing:  We didn’t notice any difference in our lifestyle.

The drastic budget cuts made an immediate impact on our savings and net worth. More importantly, however, lower expenses opened up our budget to a higher level of giving.

Ways to Fight Lifestyle Inflation

The process of cutting expenses took some time and effort. While some changes simply require an immediate change in behavior, others take research and preparation. Like any other habit, getting rid of lifestyle inflation takes discipline and persistence. Instead of adjusting my budget once a year, I now review spending monthly to look for additional places to cut. I practice ongoing budget optimization so I’m always aware of where every dollar goes.

Here are some of the biggest lessons we have learned on how to fight lifestyle inflation:

Change Your Habits and Behavior

If you’re not willing to change your lifestyle, you will never defeat lifestyle inflation. Significant savings start with small sacrifices, and you’ll never get anywhere without these kinds of concessions.

For my wife and me, that means living on a monthly cash allowance of $60 each, a holdover from the early days of our marriage when we used a cash envelope system. We traded cable for Netflix and Hulu Plus, cut back on our daily coffee fix, and switched to a cheap cell phone plan from Ting. Some of these changes forced us to change our behavior, such as cutting back on data consumption to make Ting worthwhile, but we slashed our monthly bills $200.

Plan Ahead and Shun Convenience

While reviewing my family’s annual spending a couple years ago, I made the shocking discovery that we purchased an average of more than three items a week on Amazon during the previous year. Most of the time, we ordered household items like toilet paper and soap as we needed them, not realizing that we were often paying inflated prices for convenience and speed. Instead of repeating that mistake for another year, I created a household inventory system that guides quarterly bulk purchases. The system cut our annual spending on household supplies from $1,200 to $900 during the first year.

As a side benefit, we also stopped making spontaneous Amazon purchases, reducing our overall online shopping bill significantly. By breaking the habit, our Amazon spending dropped from $2,700 to $900 year over year. By looking elsewhere for our household inventory needs, we eliminated the temptation to add non-essential items to our shopping cart.

As another example of how good planning leads to savings, my wife keeps our monthly grocery bill under $600 a month for a family of four by coordinating quarterly Costco runs, biweekly Aldi trips and weekly stops at the specialty grocery store. We still enjoy some organic food and premium meat, but getting smart with the staples goes a long way to keeping food costs down.

Take Control of Uncontrollable Costs

While discretionary spending is an obvious starting point for budget cuts, lifestyle inflation also balloons over time in categories that can easily be overlooked. It usually happens in areas where we accept spending increases as an unavoidable fact of life. But by challenging long-held assumptions about these required bills, you can find undiscovered pockets of saving.

Let’s look at insurance, where annual premium increases can wreck a budget. Instead of just living with higher rates, I have changed my view of insurance altogether. Instead of accepting my agent’s recommendations, I took on more risk and reduced coverage to protect us only from catastrophes. I increased our home deductible to $10,000 and took our car down to liability insurance, saving $50 a month. With a $25,000 emergency fund, I’m comfortable with this level of self-insurance.

The same unconventional thinking can be applied to utility bills, which also seem like costs beyond control. For example, I assumed I couldn’t do much about my $120 electric bill. But it turns out some simple changes can make a big difference. By replacing old light bulbs with LEDs, switching to a smart meter with real-time pricing, using appliances during off-peak hours, buying a Nest thermostat, and setting timers on smart lights, we cut electricity consumption by 20 percent.

Challenge the Suburban Status Quo

At some point in the budget optimization process, you’ll start to feel like you’ve hit rock bottom. That’s the time to dig even deeper and start questioning line items that seem untouchable. Usually, these additional cuts require a change in behavior that will raise some eyebrows. For example, inspired by Mr. Money Mustache, I started biking to the train station every day. In February. In suburban Chicago. Neighbors question my sanity when they see me riding my bike in the pouring rain (I pack a poncho) or on a frigid January morning (long underwear helps), but it has turned into one of the small joys of my day. And it saves me $50 a month in parking.

My willingness to bike to work has also extended our family’s time with only one car to three years and counting, which has saved us hundreds of dollars in gas, tolls, maintenance and insurance. We occasionally run into scheduling conflicts when my wife and I both need a car, but it’s usually nothing that an Uber ride can’t solve. If you’re willing to get creative with transportation and challenge conventional thinking, the budget savings will add up fast.

Lifestyle Inflation Stifles Generosity

A year into being more mindful about fighting lifestyle inflation, I can already see a significant difference in our budget. Excluding taxes, housing and child-care costs – all fairly fixed expenses, at least for now – we spent around $40,000 last year. That still leaves room for improvement, but it led directly to a huge increase in savings. We also pushed our total giving to 16 percent, a significant jump for lifelong 10 percent tithers.

By reining in lifestyle inflation, we have climbed the ladder of generosity. Every time we reduce an expense, it’s another opportunity to save, and another opportunity to give. That’s a tremendously powerful dual lens through which to view spending.

By methodically and constantly evaluating monthly expenses, it is possible to squeeze the unnecessary spending from our lives. With lifestyle inflation in check, it becomes easier to take the next step on the journey toward radical generosity.