What is ‘lifestyle inflation’? Financial advisor explains ways to avoid it


Shoppers carry Victoria’s Secret bags in the Magnificent Mile shopping district of Chicago, Illinois, US, on Saturday, Dec. 2, 2023. (Taylor Glascock/Bloomberg via Getty Images)

When you make more money, it is not uncommon to want to enjoy the fruits of your labor by buying in excess, whether it’s a new car, luxurious vacation, or a bigger home.

On the surface, having the financial flexibility to afford more can be an advantage, but it’s also a symptom of “lifestyle inflation.” 

The term refers to a tendency to spend more money when your earnings increase. It can be a burden to avoid because it’s not easy to identify that an increase in spending can gradually happen over time.

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“Lifestyle inflation is definitely something that comes up frequently with our clients, particularly those that are trying to stick to a budget, gain financial independence, or even retire early,” said Ryan Viktorin, vice president and a financial consultant at Fidelity. Those concerns can be amplified during times of economic uncertainty when people have things like inflation and market fluctuations to deal with as well!”

Viktorin explains to FOX Television Stations that lifestyle inflation can derail your finances if you are not careful. 

“Lifestyle inflation can make it hard to stick to a budget and achieve your financial goals, particularly if you’re someone who’s trying to save for things in the future. A few dollars here and there can really add up over time, especially when you consider the fact that that’s money that could have been accruing interest or going toward bigger savings goals.”  

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The VP shares that some of her clients struggle, particularly when they begin to earn more money, their spending habits soar, and it can spiral out of control if not managed. 

There are certain things that consumers can do to avoid falling into the trap of lifestyle inflation. 

“The best thing you can do is be aware of your spending. Even if you don’t have a strict budget – I know that word scares some people – having a general idea of how much money you’re taking in compared to how much you’re spending can help you keep a pulse on how they’re tracking toward their goals and tip them off when that lifestyle creep might be setting in.”

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Viktorin shares that Fidelity utilizes an app to help clients tap into the behavioral aspect of their spending while helping build strong financial habits, including building savings. 

“It’s always important to start with identifying your goals. Those should be the anchor point of any financial plan and budget so you know what you’re working toward! Above all else, the best financial plan or budget is the one you’re going to stick to. If your goals are unrealistic or too aggressive, that can get discouraging really quickly. Even if you do have a big goal to tackle, like saving up for a downpayment on a house or something even longer-term like retirement, it’s helpful to set smaller goals and milestones that you can hit along the way to stay motivated and on track.”  

And as we head into 2024, Viktorin shares some helpful financial tips. 

“We just ran our 15th annual financial resolutions study and found that two-thirds of Americans are considering a financial resolution for the coming year, so this is a great time to be thinking about setting new financial goals and habits!” 

“I’m always going to say that the best first step is creating a plan. Think about your short- and long-term goals and set realistic milestones to celebrate along the way! It doesn’t have to be all or nothing – even if you don’t hit those milestones, you’re still making progress. Fidelity has a lot of great resources to help with this, whether you prefer putting together a plan on your own or coming to one of our investor centers to chat with someone like me!”  

“Now is a great time to do some financial end-of-year cleaning as well – take a look at things like recurring subscriptions and common purchases to see if there are things you can cut going into the new year. You don’t need to get rid of everything, but consider prioritizing those purchases so you can put more money toward your saving and investing goals. Small amounts can add up over time!”

“Consider downloading an app like Fidelity Bloom to get a handle on why you’re spending and take a more mindful approach to your finances in the new year. I know things like budgeting and planning can be intimidating, but they don’t have to be! Understanding why you’re making certain purchases can be an important first step in establishing a healthier relationship with your money.”

This story was reported from Washington, D.C.   



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