First-world nations have a lot of HENRYs (High Earners, Not Rich Yet). They are the “working rich”, those who would stop being rich once they stopped working. They make a lot, but spend nearly all of it. Many professionals, including lawyers, doctors, and bankers, fall into this category. And what eats away at their money, more than anything else, is something called lifestyle inflation.
What is Lifestyle Inflation?
Let’s compare two households – one lower-class and another middle-class. You’ll likely find that both will spend roughly the same percentage on things, such as housing, food and holidays (but the absolute dollar amount is far higher in one scenario than the other).
Once we’re above a certain minimum level of income, we start pouring the extra money into these things to upgrade our life. This occurs even when we don’t add members to our family.
We buy bigger homes and nicer gadgets, and dine at more expensive restaurants. It’s a predictable behaviour called lifestyle inflation. And it entraps even high-earners. People say that inflation is like a thief, sneaking into your portfolio and robbing your money’s purchasing power.
But lifestyle inflation can be just as insidious. Years will go by, and perhaps millions will pass thorough your hand. But in the end, you’ll wonder where it all went, and why your retirement account is so small. Beyond a minimum level of income required to pay for basic necessities, any additional income is discretionary. This means that how much lifestyle inflation you experience is under your control.
So how can you avoid it?
What Causes Lifestyle Inflation
Many people are content and even grateful to have (what some might consider) a “lower” standard of living, so why do others feel the need to move up and enrich their lifestyles?
I think the root of this lies in our beliefs about ourselves. In all our years of schooling and parental guidance, we were never really taught how to deal with negative self-beliefs and thoughts. Or, we look outward and toward consumerism to give our life validation, a sense of worth, or a jolt of pleasure.
Every person will at some point in his life feel a sense of inferiority, insecurity, or inadequacy. This usually comes in the form of feeling like you’re not good enough, smart enough, pretty enough, skinny enough, rich enough, or desirable enough.
And because we’re social beings, we look to the world around us to tell us how to fit in, and how to live. And what gets highlighted and popularised are the lives of celebrities, the wealthy elite, and other influencers who seem to “have it all”.
We also are exposed to a ton of marketing advertisements and messages. Sure, we might ignore or scoff at the more blatant ads of bikini clad models selling watches. But the subtle messages are all around us. Sometimes they come from family members, friends, colleagues and even financial advisors. These messages come in the form of the labels they wear, their Facebook/Instagram feed, and their bragging about a recent holiday they took.
Marketing is everywhere, and the vast majority of marketing messages you see aren’t in the form of a traditional print ad. These messages build a strong culture of consumerism. They shape our beliefs and exploit our guilt, fear, insecurity, or other vulnerabilities.
They give us answers to our problem, even problems we never knew we had. And they tell us that we deserve it and are worth it. And that this is the way (and only way) to “live life to the fullest”.
If you’re even a bit apprehensive about adopting a higher lifestyle, friends and financial advisors are quick to chime in with, “Don’t worry. Your income will keep increasing as you advance in your career. And any investments you make will earn even more money for you.” Their outlook for you and your earning/investing potential is always rosy and optimistic. So in upgrading your lifestyle, they say, you can afford it.
How to Minimise Lifestyle Inflation
People who talk about ways to avoid lifestyle inflation always mention things like having a budget, putting money into designated jars, and other such tactics. But I believe the problem is mostly mental. We simply don’t know how to cope or deal with negative self-beliefs and thoughts, or how to seek pleasure/validation outside the scope of consumerism.
While I believe tracking your money and having a budget is good, I think a more profound and important thing is to change your perspective.
So to avoid lifestyle inflation, I think you should be mindful of these things:
1. People are too busy trying to impress you, to even notice you trying to impress them. What did you have yesterday for lunch? What did you wear last week? Do you even remember? Do you remember what a specific friend or relative wore to your wedding? Not likely. Do you think they’ll even remember what you (as the bride/groom) wore? No, and they won’t remember what food was served either.
We have terrible memories. In order to really remember something, we need to focus a lot of our attention on it. But most of the time, we’re so concerned about how we appear to others to even notice the people around us. Well, guess what? Everyone is also busy with worrying about how they appear. Unless you do/say/wear something really outrageous (like a meat dress), nobody really cares, and nobody really remembers.
2. How you see yourself and how you think about your life are the only things that matter. Have you ever met/seen someone who was very plain looking or even what society considers to be ugly, but that person exuded genuine confidence, charisma, and warmth, which then made him attractive?
How we think about ourselves influences how others perceive us. So if we value and care for ourselves, we too can “glow” from within. That exuberance and glow is contagious. And it is much more attractive than anything you could ever buy at a store.
As Maya Angelou said, “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
3. More things and a fancier lifestyle may not make you any happier. Studies have shown that beyond a certain level of income, any additional income does not have a significant effect on creating more happiness. Yet sometimes, the opposite is true. Having more things and having more choices means also having more responsibilities. And that can be burdensome.
As Jim Carrey said, “I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.”
4. Your beliefs are influenced by marketing messages, so best to avoid or ignore them. This doesn’t just mean stop looking at magazines. It also means stop cyber-stalking your peers or celebrities. Stop playing the one-upmanship game with colleagues, who are always gossiping, or discussing gadgets, spa retreats and holiday itineraries. Instead, find other like-minded friends who are more interested in meaningful connections rather than competition.
If family members insists that you should have a certain lifestyle, ask what is the basis of this belief. Chances are they’re influenced by marketing messages that promise happiness. And hopefully you can convince them that you’re already happy at your current lifestyle level.
5. Your inner critic will always be there, but you can alter the narrative. I don’t know who taught us how to be our own critic, but we are really good at it. We all have an internal itty bitty shitty committee, that knows all our flaws and is quick to judge.
But we also know what it means to be a good friend. We know that when someone who is feeling down comes to us, we give him a listening ear, compassion, and kindness. We validate his feelings, soothe his pain, and try to bring him back to a place where he can sort through his situation.
As a friend, we may provide a much-needed outsider’s perspective, which may cause him to reexamine his beliefs. We don’t bring up irrelevant past mistakes, and we try to remain objective while also being empathetic.
Our inner critic will always be there, but we can steer the inner narrative toward being a better friend to ourselves.
6. It’s easier to adjust upward than downward in lifestyle. A HENRY once told me, “Owning and driving a car in Singapore is a pain! But once you get one, you will never go back.” We adjust to improvements in our lives very quickly. A bigger house, faster internet, a better handphone, etc. We experience the joy of gain, but it isn’t very strong and neither does it last.
Instead, the pain of loss is twice as strong as the joy of gain (this is called loss aversion). This means it’s far easier to adjust to moving up than going down in lifestyle.
If you have assurance that you are likely never to experience a drop in your lifestyle level, then moving up might be fine. But beyond a certain point, moving up (especially through debt and over-leveraging) might just make it so that you have a much bigger fall. By staying content at your current level (assuming it’s sufficient to be healthy physically and mentally), you will never have to deal with the disappointment of falling down the rungs of the never-ending lifestyle ladder.
Lifestyle inflation can be minimised if we tackle the root of the problem. We need to learn to deal with negative thoughts and self-belief. We need to find other ways to add pleasure, value, and worth to our lives. And we need to change our beliefs, perspective and thinking.
Living paycheck-to-paycheck is not just something poor people do. Rich people, or not-rich-yet people do it too. Don’t be a HENRY, and don’t let others dictate what a proper lifestyle should be.