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.