Curb Lifestyle Inflation

Much has already been written about Lifestyle Inflation, that notorious demon that rears its head every time you get a raise or a large bonus.  “What could it hurt to buy that new car?  It’s only an extra $200 per month but I just got a raise so I can afford it,” you tell yourself.  I suppose it all comes down to priorities.  Which do you want, that shiny new car that will be worth thousands less the minute you drive off the lot or that early retirement?  Your choice.

 I’ve often heard it said, “if only I’d lived like I was in college for just a few more years, I’d be a millionaire by now”.  It’s true.  Saving just $5,000 per year for five years after college would net you almost half a million dollars in 30 years, even if you never saved another dime.  While everybody knows the small expenses can add up, to my mind the true culprits of life-style inflation come down to three main factors.

• Ditch the Expensive Cars – Besides housing, your car is probably your single largest expense.  Be reasonable about it.  You don’t need a new car every five years.  In fact, you should never buy a used car at all.  Probably 3 our of 5 cars on the road were financed with negative equity from the last new car rolled into the current loan.  Don’t be one of those people.  It’s a trap.  Instead, buy a sensible used vehicle and drive it into the ground.  Mercedes and Lexus’s are for people who are already rich, not people trying to become rich.
• Downsize the McMansion – Owning your own home is an almost sacred part of the American Dream.  People fall all over themselves  to put themselves in massive amounts of debt for three decades for a house three times as large as they really need.  Perpetual debt slavery?  Some dream that is.  “But my home is an investment.  Renting is just throwing your money away,” I can hear you screaming.  Well, it’s not really all that great an investment.  In fact, the majority of homeowners will end up losing money on their “investment” over the long term.  They mistakenly think just because they sold their house for more than they paid for it, they’ve had a gain.  Well, if you ignore all the mortgage interest, maintainence, property taxes, and repairs over the years, of course you have.  Unfortunately, that’s nothing more than a self-delusional fantasy.  After they subtract out all those expenses over the years, most homeowners will probably find themselves in the red.  And that’s fine so long as you don’t use the “it’s an investment” excuse to convince yourself to buy more home than you can afford.  If you don’t want to feel stretched over hot coals for years to come, never take out a mortgage more than twice your annual income.
• Stay in Shape – In the end, your health is your most precious asset.  Take care of it.  Not only will a little exercise make you feel better today, it will save you tons of money in ways you’ve probably never considered.  Besides the obvious savings due to fewer health problems, you’ll also be less susceptible to advertising and a hyper-consumption life-style.  If you’re out for a run, you aren’t at home watching commercials on tv and you won’t be tempted to buy that gadget you’ve never heard of but suddenly can’t live without.  I’ve personally found I watch hardly any tv at all during periods when I’m training for something.  There’s just no time and besides, I’m too energetic to sit in front of the tv for long.  I go for a jog and relax with a book in the park instead.