Most Americans Aren’t Financially Healthy

I woke up this morning, and while having my morning coffee and catching up on the news, I came upon an article titled “Most Americans aren’t financially healthy despite economy booming, study finds.” The article was published in the Los Angeles Times and talks about how despite low unemployment numbers, rising wages, and a strong economy.

I’m sure you guys are familiar with these articles. It seems like every time we have a slow news cycle the media likes to run with yet another story about one of two things, how millenials are lazy and entitled, or about how bad Americans are at saving and being financially responsible. Along with a host of other scary stats, the article said 47% of Americans stated they spend as much if not more than they earn.

This got me thinking about a topic I’ve been meaning to write about as well as make a video about for quite some time now and that’s “Lifestyle Inflation”.

 

What is Lifestyle Inflation?

Simply put lifestyle inflation is allowing your lifestyle or your spending to inflate with your salary. You come out of school and get a job making $30,000 per year, you probably allow your lifestyle to inflate a bit from how you were living as a broke college student. You eat real food instead of Ramen Noodles. You allow yourself to buy craft beer instead of Keystone Light. You eat an occasional additional meal out and maybe buy a reasonably priced used car to replace your beater with the falling headliner that blocked your view of the road.

A few years further down the road you land a promotion or make a job change and get your income up to $60,000 per  year. You’re making more money so you run out and lease or buy a BMW 325 and take on a $500+ car payment, you move to a nicer apartment, eat out more, take an extra vacation, and buy yourself a new X-Box. This cycle continues to replay itself over and over throughout your life as your career and income improves.

Making Six Figures and Living Check to Check

Maybe some of you guys know someone like this, they are making six figures, yet living check to check, and you wonder…how is that possible?

A couple weeks back myself, my girlfriend and a friend of ours took a drive up to the Upper Peninsula of Michigan, beautiful spot by the way, highly recommend checking out Pictured Rocks and that whole area if you get the chance. Anhow, we had the car all packed up, we left Chicago around midnight and planned on driving most of the night as to not waste the next day driving.

Around 3 or 4 in the morning we stopped in Green Bay, Wisconsin for gas and grabbed some coffees. I was standing behind my buddy at Dunkin Donuts as his debit card got declined over a $2.30 cent coffee. I wound up buying his coffee for him and as we walked out to the car he complained how it was after midnight and his company should have direct deposited his money into his account already. He was quite literally living check to check in that he couldn’t buy a $2 cup of coffee the day before payday.

Now I know money is tough. I know some people have very expensive health issues, my girlfriend battled breast cancer for two years and it wrecked her financially and put a big strain on both of us. This guy however is a healthy late 20’s guy. He has a good job as an accountant making $70,000 and some change per year. He’s single and lives alone. there’s no reason he should be getting $2 coffee transactions declined, but he did. This is lifestyle inflation.

About a year earlier he traded in his perfectly working Ford Focus with under 100,000 miles for a newer Toyota Highlander because he “liked them” and “liked to sit higher while driving”. He moved into a bigger apartment. Bought a lot of camping gear. Started attending a lot of festivals, and began eating out a lot more.

Another buddy of mine just moved from a 3,000 square foot house with just him and his wife into a 6,000 square foot $800,000 house with his wife and their new baby. His exact words to me when he told me they were selling their house and moving were “we can’t live in this cracker box with me, her, and a baby.” That cracker box was 3,000 square feet and had 4 bedrooms and 4 bathrooms. He then bought a $70,000 Mercedes SUV and has been spending a fortune decking out the new place. He also seems incredibly stressed about money.

This is lifestyle inflation at it’s finest. Allowing your income to grow in alongside, if not even more than your salary as it grows. And typically, this is all in an effort to impress people whom you don’t even like. There’s a famous saying, buying things you don’t need or want to impress people you don’t even like. Lifestyle inflation is how people with good incomes wind up living check to check just like the family of four making $40,000 a year and struggling living check to check

 

Not All Lifestyle Inflation is Bad

I think some level of lifestyle inflation is normal and even good, especially if you go from being broke, to being a bit more financially stable.

Just a few years back when I began dating my now girlfriend I was broke as hell. Today she jokes with me how dinner at my house was spaghetti 7 days a week, and sometimes lunch and breakfast too. Because spaghetti is cheap. Back then I was really scraping by check to check. I never had food in the house. I was driving an unreliable car. Wearing clothes that didn’t fit me or were falling apart, and digging in the couch for change or hitting up the Coinstar machine to make it another day or two to payday.

Over the past few years my income has increased about five fold, yet I’ve managed to only allow my spending or my lifestyle to inflate to the tune of probably less than $10,000. As my income increased I did allow my lifestyle to inflate a bit. I dumped my beater car that guzzled gas and was unreliable for a couple year old Hyundai Elantra. I began renting out my old duplex in the hood and moved to a house in a nicer neighborhood. I stopped eating Ramen Noodles for every meal and started buying meats and produce. I think not only was this good in the sense that I no longer had to live like a poor person, but in many ways these were even financially smart moves. My car was better on gas and maintenance costs were lower. While I was approved for a $475,000 house I bought a $2,000 modest house in a nicer area. While my food costs increased I was now eating better which likely equates to me being healthier and having more energy which allows me to hopefully earn more. I did not however go out and buy a BMW 325, a McMansion, and start eating out at sushi joints 5 nights a week.

There’s nothing wrong with having nice things, it’s nice to have nice things. I think the most important thing is to make sure you’re actually enjoying and getting value out of what you’re spending your money on. There’s nothing dumber than spending money on stuff that you don’t even really like or get enjoyment out of, just to impress someone that you don’t even like in the first place.

 

The Exciting Part of Avoiding Lifestyle Inflation

I don’t think there’s any right or wrong way to live life. Some people enjoy nice things and within reason I think that’s completely fine if they want to spend more money. Me personally, material stuff just doesn’t really get me off. I’m not really into fashion so nice clothes don’t really do anything for me. I’m not really into cars so having a nice car isn’t going to do much for me. I’m not above desiring some nice things, but majority of the time I realize for the money spent, I’m not going to get much joy out of the item, and/or, the joy will be very short lived and it’s just not worth the expense.

For me personally, my splurges would probably be food and travel. But more than anything, I enjoy my leisure time, peace of mind, and not working. That’s where the exciting part of avoiding lifestyle inflation comes in for me. I like to look at it this way. If I was making $100 per day and lived comfortably. If I began making $200 per day, if I could continue to live on $100 per day, then everyday I work, means another day I don’t have to work. If I work a week, I’ve just earned a week off. If I work a month, I earn a month off. If I work a full year, I earn a full year off.

Whether that means taking a sabattical or a mini midlife retirement or going the F.I.R.E route and working a few more years but retiring permantently at a young age, that in my book beats having a nice pair of pants or a fancy car anyday.

 

The Takeaway

So here’s my takeaway from this. There’s no right or wrong way to live your life, but make sure the things you’re spending your money on are things that either drastically increase your quality of life or bring you a lot of happiness. Really audit yourself and make sure your not wasting money just to keep up with the Jones’s.

Secondly, some people like nice things, there’s nothing wrong with that, but I think all of us could be better at assessing what we really need or want, and what we don’t.

What’s your thoughts? Drop a comment below and let me know.