Why buy the iPhone 6 when you can get the iPhone 6s for an extra hundred dollars? You will for sure want the insurance—even though it will cost you $16 a month. After all, who knows how long it's going to be until the iPhone 7 comes out. And you are definitely going to have to get the iPhone 7 too.
Welcome to the wonderful world of lifestyle inflation.
Actually, lifestyle inflation isn't so much a world as it is a never-ending cycle of needing anything and everything new.
It's upgrading to the 63-inch flat-screen television because 58 inches simply wouldn't do. It's buying the bigger house in the suburbs just because you've landed a new job and can finally afford the bigger house in the suburbs. You don't actually need the space, but now that you're making more money, you can finally fill all that extra space with stuff you wouldn't ordinarily need.
Yes, lifestyle inflation is the natural tendency for anyone who is human to want more—and it flies in the face of anyone who is committed to practicing prosperity economics.
Prosperity economics, of course, is a financial strategy that emphasizes saving, prioritizing, smart investing, and making the most out of often overlooked financial tools, such as whole life insurance. In short, prosperity economics is about making the most of your money today, tomorrow and every day so that you can live a long, prosperous life today, tomorrow, and every day into the future.
Sadly, most people are hardwired to spend every extra dollar they make—and it can be debilitating.
The slippery slope of lifestyle inflation
In college, most people struggle to simply scrape by. There is tuition to pay and books to buy. So people make the most of what they have—older iPhones, beauty products from big-box retailers, and the car Mom and Dad helped them buy in high school.
But then they graduate, get their first job and start earning more money. Almost immediately, most people start sliding down the slippery slope of lifestyle inflation.
All of a sudden, apartments and cars need to be bigger. Maybe that face cream from Walmart isn't as effective as it was during your freshman year, so it gets replaced by one that costs three times as much money. And you have to get the latest iPhone, of course.
A few years and a couple of promotions later and people are buying separate shoes for walking, running, basketball and cross-training. And they're all name brand. Face cream isn't something that's just for the evening anymore—now there's a face cream for the morning, another one for after the evening workout, and yet another for bedtime. Then there's the starter home, the second house, and finally the dream house in the suburbs.
It's all increasingly more expensive, and you buy it all simply because you can finally afford it.
But that's not prosperity economics. No, that's lifestyle inflation. And if you aren't careful, it can leave you tumbling financially and landing hard on an empty bank account. Because in the end, lifestyle inflation always costs you more than prosperity economics.
The problems with lifestyle inflation
To understand the true cost of lifestyle inflation, you first have to understand that it is not directly related to the true costs of the products you "have to have."
Sure, insisting on buying a $50 face cream when you could get buy with the $7 cream probably isn't the smartest decision. But the true cost is related to your emotional health, your freedom, and your ability to truly practice prosperity economics by making your money work for you.
Here's a look at three of the most common problems associated with lifestyle inflation:
- Emotional stress. When you are constantly upgrading to larger mortgages, bigger televisions, more vehicles and all of the latest electronic devices, your life begins to feel like a hamster wheel. Your income increase, but so does your spending—and that's a never-ending vicious cycle that can leave you feeling stressed.
- Lost freedom. Debt is a trap. When you are in debt, you have fewer choices, less ability to take advantages of opportunities that present themselves, and little financial freedom. You may think that spending what you want, when you want is the best way to live a prosperous life. But in reality, it's a surefire way to wind up in debt.
- Opportunities lost. When you spend money on unnecessary items, you are essentially wasting your money. This is especially true when you consider the opportunity cost—what you could have done with that wasted money (invest it, save it, etc) to put it to work for you over the years.
That's the bad news. The good news is that you can protect yourself from the problems associated with lifestyle inflation and practice prosperity economics—but you have to be cognizant of your decisions.
Protecting yourself from lifestyle inflation
Here is a look at five ways you can protect yourself from lifestyle inflation and practice prosperity economics:
- Plan your work, work your plan. Yes, practicing prosperity economics should be treated as work. Because at the end of the day, it is work. You are going to have to have a plan about how to make the most of your money (and not waste it) and then work your plan every single day. This means avoiding temptation, always being aware of your financial decisions, and never deviating from your plan.
- Live like you've never gotten a raise. The slide into lifestyle inflation typically begins with a raise. As soon as you begin making more money, you start spending more money as well. So why not live like you have never received a raise? That means saving the difference rather than spending it. You can still splurge on some of life's finer things once in a while—just not all day, every day.
- Know what you need and what you want. You need to eat dinner. You want to eat an expensive steak dinner. You need a car but want to drive an expensive sports car. See how that works? If you know what you need as well as what you want, you will be better prepared to focus your immediate financial decisions on satisfying what you need so that you can put a long-term plan in place to eventually obtain what you want.
- Plant the seeds of success. There is nothing wrong with eating your only piece of fruit—as long as you have harvested its seeds so you can plant them and grow more fruit. When you are practicing prosperity economics, the same concept applies to your money. Don't spend everything you have. Instead, spend a little and re-plant the rest into creative ways of growing your money, such as a life insurance policy with a PUA (Paid-Up Additions) rider that can help you build your long-term savings.
- Live a life of gratitude and contentment. The best way to protect yourself against the problems associated with lifestyle inflation is to simply be happy with what you have. Sometimes living a full, rich life isn't about the latest iPhone or a bigger house or a faster car. More often than not, it's about spending time with family and friends, enjoying a good book, and being grateful for and content with life's simple pleasures.
At the end of the day, you will always have more money in your wallet when the sun goes down if you practice prosperity economics and save, invest and conserve your money rather than spending it on the next great thing.