You know the Meme online “I was (X) years old when I Learned (X)”? Well, I have a new one: I was 32 years old when I learned how to fight lifestyle inflation.
But anyway, back to lifestyle inflation. Yes, 33 is ridiculously old for learning this lesson, but at least I learned it now, right?
Those who learn how to fight lifestyle in their early 20’s will be very ahead of the curve. Right after college (those early earning years post-college) and then when your income increases drastically into your 30’s and 40’s is when the most lifestyle inflation occurs.
So, if we can stop lifestyle inflation when it starts, we can save more money and better live a “financial best life.” Got it? Let's move on.
How my husband taught me fight lifestyle inflation
My husband is one of those annoyingly perfect financial types who made the savviest money move at every step in his own financial journey. From the moment he started working he always maxed out his retirement, paid off his loans in full, saved as much as he could.
And he did it by fighting lifestyle inflation. How did he do it? By following this one rule that we now follow in our own house:
“If you can’t pay cash, you really can’t afford it.”
Nothing happens for me now unless we can cash flow it: car purchases, home improvements, vacations, buying home furnishings.
I remember when we moved from an 1100 square foot condo into a three-story house, I was dying to fill up the rooms so our home could feel, well, homey. Nope.
I was skeptical about this rule, but it wasn’t until after we were married and joined our finances that it really sunk in. At first I thought, why not finance a car? Car repairs? A cruise? But right around the time we got married, retailers started offering services buy-now-pay-later services (like Afterpay and Affirm) in which you can finance even the tiniest purchase and I saw how damaging it can be to someone's personal money. (I'm not a fan of BNPL services. Here's a great article on why.)
And that’s when I began to see my husband was right. While sometimes necessary (a mortgage is a type of “financing” as are student loans), for the most part paying cash is the better option.
Waiting to pay in cash is hard. And It isn't glamorous.
Once your salary increases and you can afford a bigger car payment and bigger mortgage, doesn’t that mean you should upgrade?
But from big purchases like a car to small ones like a top from Forever21, getting you to pay more for your purchase is how “the game” benefits both banks and major retailers. Banks earn interest, and financing enables shoppers to spend more with retailers.
Financially, it's good for everyone but you.
Being in a cycle of financing it all: from consumer electronics to tires to baby furniture ensures two things:
- you are always paying interest on something and making retailers and banks money
- you are always making the next purchase because if you don't have to pay upfront, you can have it now. And if you can have it now, why would you wait?
But my husband explained it like this: “Anytime you finance anything you're paying someone for the privilege of having something now. It's instant gratification but it comes with an added cost. ..You give someone a lot of money, just for the privilege of having something now.”
By refusing to pay interest at any point, you’re pretty much ensuring that the only things you do buy are the ones you can afford.
This in turn, ensures you live within your means and COMBATS lifestyle inflation.
But seeing this cash-only rule in action (and having to live it as part of a financial partnership with my husband) I’ve seen the benefits up close. Buying in cash not only fights lifestyle creep, but it also enables you to buy more in cash. Those little pennies saved from not paying interest on something means we can afford to buy more and more in cash as we go and/or save more and more over time.
It's hard to cut back. It's harder still to cut back than to keep living at the lifestyle you're used to. This is why many frugalians advocate living like a college student for as long as you can. It sucks, but it works.
I'm not saying don't enjoy your money, or spend what you want on what you like, or that you shouldn't finance the things you really, really need. (Like a car repair so you can get to work.)
What I am saying is think before you finance, especially if you want to keep your lifestyle costs low.