Avoiding Lifestyle Inflation

"I dont know what, they want from me, Its like the more money we come across, The more problems we see" -Puff Daddy (AKA Diddy)

It is always shocking to me to read articles about professional athletes and celebrities who make millions in a matter of years and seem to lose it all just as quick. It is hard to believe that it is possible to squander 20 millions dollars over a lifetime and even more impossible do it over a matter of a few years. Most people say, "If I had just one million dollars, I could probably live off that for the rest of my life", but are they being truthful?

I believe, given the circumstances that we are in today, that most people would not be able to live off one million dollars for the rest of their life. Unfortunately, this is due to a condition that is called "Lifestyle Inflation".

Lifestyle Inflation is defined as spending more money on non-necessity items as your income increases.

Do you remember that family the "The Jones's". They were the ones with the nice cars that are currently one payment away from getting repossessed, the McMansions that are on the verge of getting foreclosed on and no savings to show for all of the money that was earned. Well, the recent recession has taught up that keeping up with "The Jones" is a bad idea, but unfortunately, many consumers still continue to try to keep up. Below are some recommendations to avoid getting caught up in lifestyle inflation.

1. Do not compare yourself to others.
• Quite often people feel pressured in spending more money due to the fact that people around them are spending. Whenever someone gets a new car or a new home, why is it that people feel like it is necessary for them to do the same? What needs to be understood is that what is for someone else may not be for you. Be content with what you have and improve on it as needed.
2. As you make more, save more.
• One key to financial freedom is to save money. Whenever receiving a raise or other increase of income, rather than finding something new to spend the increase on, put it in an online savings account or start a new investment fund.
3. Treat yourself responsibly by not spending money that you do not have.
• In anticipation of earning more money, people often spend money that they have not even received. This is bad because spending in anticipation can possibly backfire in the case that the money does not come through after it has already been spent. This causes more debt and potential to get in a situation that is near to impossible to get out of.

Remember, be smart and avoid "Lifestyle Inflation". Live within your means and avoid trying to keep up with everyone else. Take time to develop your plan and stick to it.

For more information on the article that inspired this post, please check out the following link:

How (and Why) Athletes Go Broke