Lifestyle inflation refers to the incessant upward creep in your spending as your income gradually increases. Things that weren’t particularly important before suddenly become necessities, and you wind up struggling to get ahead (or stay even) despite that bigger paycheck.
At the other extreme, we have what I’ll refer to as “lifestyle deflation.” I’m talking here about instances in which a previous expense suddenly evaporates, leaving you with improved cash flow — at least until that next cycle of lifestyle inflation kicks in and starts eating away at your newfound savings.
The reason I bring this all up is that our youngest son “graduated” from preschool last week. He’s very excited because he now gets to go to kindergarten. Me, on the other hand… I’m very excited because we no longer have to pay preschool tuition.
After totaling everything up, we’ve been paying somewhere between $250-$300/month for tuition, special programs, etc. As of now, however, that expense is gone. In other words, our lifestyle has deflated a bit. So what are we doing with our newfound cashflow?
Instead of simply letting that money flow back into our household budget and get spent on something else, we’ve made a conscious decision to invest this windfall. We’re already maxing out our available retirement accounts (including my HSA), so we’re planning on increasing our monthly contributions to our brokerage account.
When you think about it, this mentality is much like consciously saving a portion of every raise. Out of sight, out of mind. You’ll never miss the money, and your future self with thank you for being proactive.
My plan is to contribute the amount I would have been paying for daycare to the 529, as others have suggested. I don’t have quite enough money to both pay for day care and max out a 529 at the same time.
you just reminded me that one day my kids will be out of daycare. we spend an easy 1300 or 1625 a month (depending on how many mondays in the month there are) on daycare and when they get to school i will be enjoying watching my savings rise even quicker!
I believe Nickel already has 529 plans…
this is so true. the best way to save is not to pay all your bills and see whats left over. in my mind it is to save first then pay everything out this way you know you are already setting yourself up for success by saving in advance.
great point!!
Yeah Nickel, as Christine said, what about a 529 plan?
That is great you are saving the money. But why don’t you just direct it towards an education fund for when he graduates high school? Then again, maybe you should save it for high school expenses (I have a 16 year old and expenses keep going up!). 😉
Congratulations! My son starts kindergarten this year too, and we spend about three times that much on child care. We have spent a lot of time talking about what we’ll do with the extra money.
If you get extra money either due to the reason mentioned (childcare) or because you got a raise etc., it is preferable that the money goes into savings.
I like to think or lifestyle deflation as living below our means, way below. Ultimately, that is usually the only true way to build wealth.