I’ve read a lot about the dangers of lifestyle inflation on other blogs, and it makes sense: As I make more money, if I keep my spending the same, I’ll be increasing the amount I save without giving up our quality of life.
This logic may be hard to argue with, but I’ll try.
I think lifestyle inflation is natural, can be used as a reward, and we should all allow ourselves to let go every once in a while, even if it means forgoing some of our savings.
I recently received a raise at work. It wasn’t large, just about a 3% increase in my bi-weekly paycheck. It felt nice to be recognized for a job well done, but I suddenly had a decision to make: What should I do with my extra coin?
Around the same time, I signed up my first advertiser for the blog. Again, not much, but I’ll hopefully get more advertisers and I have to make a decision about what to do with my extra money.
First, I thought about just putting it in savings and over the course of a year, I’d have a couple thousand extra dollars the bank. Nice, right?
Then, I let my mind wander. I’ve wanted an iPhone for awhile, but that’s ridiculous, right? I don’t actually need one, do I? My phone works fine for phone calls and text messages, isn’t that enough? Of course, being connected all the time would be cool. But is it a realistic option?
For awhile, I’ve lived like a college kid. I live in an apartment where two of the occupants live in closets (we had to remove the shelves so they could fit their beds. All it is is a bed), I live in a room with no windows (not the closet, but I won’t be bragging anytime soon), and I eat pasta about 6 times a week. I don’t live a lavish life, but to be honest, I don’t mind it because I know I’m saving $300-$400 a month in rent alone.
Now is my time to slowly move away from living like a college kid. I should afford myself something nice every once in awhile. Now is once in awhile. And that something nice is an iPhone. I’ve worked hard the past 9 months and taking a look at my budget planner, it looks like I’ve been saving about 50% of my income each month. I’ve been up a healthy emergency fund, fully funded my 2009 Roth IRA, and now I deserve to be rewarded.
The iPhone cost $200 plus $30 a month for the service. That comes $920 for two years of service. Sounds like a lot, right? Well, between my raises and my blog income, it will account for a little more than half of my income increase. Sounds reasonable, right?
I know that I could simply increase my savings and that I don’t NEED an iPhone, but after weighing the costs and advantages of this, I’ve decided to go for it. I’m rewarding myself for a job well done, and I’m still able to save a significant amount of my paycheck.
Readers, how do you feel about lifestyle inflation? Am I right or am I being silly and simply justifying a ridiculous purchase?
Of course, I’m not one to throw money around without thinking about minimizing the cost, so I did my research and realized that the $200 iPhone could be mine for…free. Want to know how? Come back tomorrow and find out how I snagged a free iPhone and 2 free months of service.
Are you sure about that $30 service? I think it’s quite a bit more than that. :)
Nevertheless, it sounds like you’ve done a fine job of accounting for your raise.
@Keith @ LifeTuner, That’s the additional monthly service I’ll be paying. I already have AT&T (on a very cheap plan). Thanks!
I like the idea of spending a little on yourself with the extra money, but it’s still important to be careful because it can be a slippery slope with what you use it on. Sometimes, it’s more worth it to just pocket it and put it in savings instead of spending it on somethign just because you feel like you have the extra money to spend. I once found a dollar on the ground and instinctively bought 20 pieces of Bazooka gum….not a good idea. Obviously, that’s on a much smaller scale, but still. The iPhone I think was fine, but sometimes you might spend it on something that’s much more obviously and want than a need.
I think a little lifestyle inflation is a good thing too, as long as it’s in a controlled fashion.
Last year, I would have told you a different story, but now (especially if you are young), I think it’s a good thing. It’s good as long as you are not going into long term debt to support your additional spending.
Heck, I’m even spending more on myself this year, see my Spending More Money For a Better Life, Part 1 of 2 post.
Enjoy that iPhone, perhaps someday soon, I’ll join you in owning one too :)
@Money Reasons, Nice post, it’s funny how you want the best for other people, but neglected the things you wanted for a long time.
You can’t deprive yourself of everything! I think it’s okay as long as you did the research and found that the product itself is worth the money. (at least you didn’t go out and buy the iPad!…I’m not so sure that product is tried and true yet :) ) You also live very frugally, so I think your splurging on one item is justifiable!
@Little House, Right, I don’t think I’m ready to take the iPad plunge yet. I waiting for the $800+ 3G version ;)
I’m totally with you on this one! I justified my iPhone purchase by the increase in productivity. That should, eventually, lead to an increase in income anyway. What I discovered is tons of apps that make my smart shopping & frugal lifestyle even easier. I wrote a guest post a couple weeks ago titled “6 Apps That Will Pay for You iPhone” and I stand behind that title. I’ve saved more than the cost of the iPhone in the first 8 months so I’m guessing I’ll get to covering the data plan eventually. Of course, I went with the lower end version, which kept my costs down a bit.
Lifestyle inflation is inevitable, especially when going from college student to being on your own to being married. Even though living with 3 other roommates and never get married the rest of your life would allow a person to save huge amounts of money, it probably would make them very miserable. The truth is that saving tons of money doesn’t bring more happiness and if you don’t treat yourself to things chances are you will eventually lose the will to work hard.
My wife and I both have spending $ every month that rolls over and the rule is that the other person can’t criticize what that $ is spent on. My wife likes to spend the $ on girly stuff and I spend mine on BMX parts for my bike and going to skate parks. Treating yourself makes work enjoyable because you can look forward to enjoying some new experience or gadget.
@Noah, Well put. I like the idea of spending money on whatever you want. It allows you to let go and not have to worry.
Something else to consider is if you will spend most of your time in areas where there is available wi-fi. I spend 90% of my life in areas where I can access wi-fi, so I bought an Ipod touch instead. The Ipod touch is essentially an Iphone without the camera or cell service. I pay no monthly fees and can download 99% of the programs that work on an Iphone. Of course if you travel a lot or are not near wi-fi, the iphone makes more sense. I guess it depends on how you’ll use the device. I use mine mostly for email, Twitter, and reading web articles.
@Noah, Also, there are ways to convert the iTouch into a phone, but it would only work where there is wifi. I would love to get a 3G iPad, hook up a microphone, and use it as a giant phone. You’re going to see some hilarious youtube videos of people doing this, just wait.
@Daniel, you are correct! I’ve actually used Skype on my Ipod touch and it works fantastic! I don’t use it often though, because my cell calls are always in places with no wifi and I usually only am calling my wife, which is free with our plan.
I honestly wouldn’t call this lifestyle inflation. I would just call it rewarding yourself for hard work.
Of course, that can be a slippery slope, too. But given your current lifestyle, I doubt it’ll be a problem.
When our credit card debt is paid off — hopefully by the end of June — I’ve already promised my husband that he can go back to having some fun money again. Of course, we’ll also be doing a whole lot with the money we were throwing at debt (emergency fund building, saving up to get a dog, paying off the last student loan, increasing our IRA contributions) but I think it’s important to celebrate once in awhile. It keeps you sane.
If you really want an iPhone, then go ahead. Just be aware that it’s not just the $30 monthly plan — and actually I think it may be $40 unless you already have texting — but there will be some app buying. It sounds like you’re already pretty careful with your money, so you probably won’t go crazy. But you might want to budget an extra $10-15 a month for apps. They’re pretty addictive.
@Abigail, We currently have unlimited texting for the family, so that cost was already accounted for. I have been SO good about not buying apps. I’m new, so I’m testing out the free ones for now and to be honest, I’m pretty content. The only one on my wish list is the MLB At Bat App, so I can listen to baseball games at work.
Wow I just posted a blog similiar to this.
As mentioned above, lifestyle inflation is inevitable. As long as you don’t lose yourself in the world of tech, you’ll be okay.
Now that we have real jobs, we treat all raises equally – 10% to each of our fun money accounts, 10% more to our vacation account, and 70% to loan reduction and savings goals.
That said, it’s also about priorities. If the Iphone is a priority for you, yay. If you rather earn your way out of a windowless room, an Iphone would not be so yay. Totally a personal decision.
I personally hate windows where I sleep since any bit of sunlight wakes me up (we’ve literally blocked out our bedroom window with card board, blinds, dark curtains, AND a dark-colored fleece blanket), but I don’t want an Iphone either. I splurge on a housekeeper and annual vacations. :-)
Good post Daniel-san! As you are still fresh out of school, it’s very reasonable for you and folks in their 20’s to enjoy lifestyle inflation.
I think once you hit around 27, you’ll start plateauing in terms of your wants and desires, and really really get focused on saving the big nut for retirement. Somewhere around 27, and definitely around 30.
Enjoy life and live it up! A dollar now is worth much more than a dollar in the future, so enjoy it while you are young!
Best,
Sam
@Financial Samurai, Thanks. That’s the second time you’ve told me to spend more because my money is worth more. But the flip side is that saving now rewards me more than saving later will.
@Daniel,
At the end of the day, it’s balance. Spend a boat load now, just don’t forget to save a boatload later. It’s easier later b/c you’re richer.
Interesting idea. I’d suggest there’s a balanced approach to consider. If one manages to avoid debt and is saving enough for retirement, there’s no harm in increasing their spends as well. I picture a graph where income rises and spending rises as well, but at a slower pace. All along, you are living beneath your means.
I have a company issued Blackberry, so no iPhone for me. But the 3G iPad has me drooling. $30/mo or $15 if I find I’m not using that much bandwidth.
@JoeTaxpayer, It comes with a pretty hefty price tag. If one fell into my lap, I’d hang it on a wall at work and watch baseball day games.
What is it about the iPhone that ensnares us Personal Finance bloggers? (https://monevator.com/2009/07/31/buying-an-iphone/) :-)
If you use it a lot it’s almost worthwhile, but the truth is it’s a luxury. One way I’ve found to justify it that you don’t hear about much is using ‘Stanza’, a free book reader. There’s 1000s of excellent old books on there, and the screen is very readable, though you could do that on an iPod touch.
On the connected front, the WordPress application isn’t bad. You can moderate comments from anywhere, which does help keep me away from the desk a bit.
As others have said, single purchases aren’t so much the big problem with lifestyle inflation. Leaving your apartment and renting alone would be classic lifestyle inflation.
Good luck! :)
@Monevator,
As Monevator notes, you can use it for blogging purposes. So its not really lifestyle inflation since its increased productivity. If you’d gotten the iphone simply so you could look cool swirling your hands around like a conductor then that’d be lifestyle inflation.
Plus, have you looked into tax deductions for blogging/freelancers? You possibly could deduct a portion of the service bill.
@FinEngr, It does help keep me updated and in touch more, but to be honest, that wasn’t the main motivation. I’ve been doing fine without it, but I put a high value on being connected. Of course, that doesn’t mean I won’t investigating the tax consequences..
Sounds like you’re a young guy with not a lot of assets and a bunch of big dreams. It’s worth spending now and having a good time, b/c saving a buck when you aren’t making a lot is much harder than saving a buck when you are making a lot.
Hmmm. . .I think lifestyle inflation is a problem depending on your lifestyle. It’s not something I worry about often actually. I’m extremely frugal in some areas, but don’t really feel bad about spending (even quite a bit) on purchases that we’ve thought through carefully and that will somehow enhance our lives.
But obviously spending more and more with the idea that it will somehow make you happier is deeply flawed–especially if you let it become an addiction fueled by easy credit. Which doesn’t sound like your case.
I’ve lived places where we pulled out the shelves of a closet and moved a flatmate in there!
I think when you’re living like a broke student, it’s only natural to slowly want to upgrade to something a little more comfortable.
As long as you do it in moderation. Putting an iPhone on a credit card that already have a balance is silly.
However, if you have sufficient cash flow, why not?