Once you finish school and start earning money — and no longer have to pinch every penny — lifestyle inflation can be a real concern. In fact, for some graduates, such as those in the medical field, lifestyle inflation can become a serious problem as the salary can quickly ramp up.
Learning how to avoid lifestyle inflation can be essential if you want to pay off your student loans faster. When you let your expenses grow too fast, and you don’t prioritize getting out of debt, you could end up repaying your student loans longer, and paying more in interest.
Here are a few tips that can help you control lifestyle inflation.
How to Avoid Lifestyle Inflation
Lifestyle inflation occurs when your regular expenses creep up as your income increases. It usually shows up as spending a little more each month for subscriptions or eating out more. Maybe it involves buying a more expensive car with a higher monthly payment, or getting a bigger home than needed. Accidental lifestyle inflation can be a little more subtle, but, in the end, it takes away from your ability to pay off your student loans.
By controlling lifestyle inflation, you’re more likely to have more discretionary income to put toward paying off your student loans faster. Here are some steps you can take to control lifestyle inflation.
1. Set Financial Goals
Start by setting financial goals. When you know what you want, it’s easier to control lifestyle inflation because you’ll have your eye on a different prize.
Consider what you want your life to look like, and determine where you need to put your money to make that happen. If you know you want to be debt free, allocate money toward paying down your student loans faster. You can also consider working with a company like ELFI to refinance your student loans.*
When you have financial goals and prioritize them, it’s much easier to learn how to avoid lifestyle inflation and stay on track.
2. Create a Budget
Another way to control lifestyle inflation is to write a monthly budget. Having a spending plan for your money can be helpful because it forces you to think about where your money is going and to limit your expenses. Thinking about your money and consciously spending can reduce lifestyle inflation and allow you to direct more of that toward student loan repayment.
3. Set Up Different Accounts
You can also set up different accounts to help you save toward your goals and control lifestyle inflation. As you move forward, consider using different accounts for goals like retirement, travel, college and other items. Making sure that you’re continually contributing money to those accounts can help reduce how much you spend on other things.
4. Make Automatic Payments on Student Loans
One of the best ways to avoid lifestyle inflation and pay down student loans faster is to set up automatic payments. Figure out how much extra you can put toward reducing your student loan debt while controlling lifestyle inflation, and then set up automatic payments. With automatic payments going toward student loans, you’ll have less to spend on more expensive items and are less likely to experience accidental lifestyle inflation.
5. Don’t Keep Up With the Joneses
Looking at your colleagues — especially on social media — can make you feel like you’re “supposed” to have a certain car or house. Trying to keep up with a certain image can lead to lifestyle inflation. Stop trying to keep up with the Joneses, and better yet, forget the Joneses altogether.
If you have peers who make expensive purchases, also consider that they might actually be overspending or even in debt in favor of their image. Rather than looking at what others are spending, think about what matters to you and instead direct your money toward your own goals.
6. Review Your Spending Periodically
Finally, review your spending on a regular basis. As you learn how to avoid lifestyle inflation, it’s important to check in. Accidental lifestyle inflation can creep in on some of the small things and before you know it, you aren’t putting that money toward reducing your student loans.
Make it a point to track your spending using an app — or even paper and pencil or spreadsheet. The important thing is to pay attention and make sure you’re only spending money on what matters to you or what’s helping you work toward your financial goals.
By keeping an eye on your spending, you can catch issues in your spending that result in lifestyle inflation and keep them under control. Conscious spending is a good way to avoid lifestyle creep.
Bottom Line
It can be exciting to start making more money and be able to afford more things in life. However, it’s important to pay attention to how you spend your money in order to prevent lifestyle inflation from overtaking your budget and delaying your student loan repayment.
Consider refinancing your student loans and then making automatic payments so that you tackle your student loan debt first, rather than letting accidental lifestyle inflation creep in.