Avoiding Lifestyle Inflation

[SC Trojan]

I'm a firm believer that the only true way to wealth is to spend less and not let yourself get caught up in keeping up with the Joneses. Most people, as they make more money just seem to buy nicer things, move to bigger houses, buy nicer cars and shiny gadgets they don't really need. Once you have this "lifestyle inflation" you end up not saving any more with your higher-paying job than you did when you just entered the workforce.

I really try to live by this mantra, but lately I've noticed a general "creep" in my expenses. Partially it's due to moving to a higher cost area (LA to Bay Area) but also I think it's due to me saying "eff it" instead of really trying to get good deals lately combined with more travel in the past couple years.

Any thoughts on strategies or tactics to avoid this trend and ward off my lifestyle inflation?

 

[Fuerza]

Cars, since you live in the city try to use public transportation as much as possible. If that isn't an option buy cheap dependable cars, civic or Camry ect. As someone that has blown money on cars over the years I kick myself for buying some of the cars I had. Key word is had....

 

[thepaul500]

You know, this is a really good point, made all the more relevant by those of us who MS large amounts of money. I have noticed that since I ramped up my MS'ing, I've been a little less cautious about my spending. Sure, some extra money is coming in, but it would make so much more sense for that to go into savings.

Heck, I did that Cadiallac test drive and actually considered buying one (can afford it, but no reason when car runs perfectly fine now)

 

[El Ingeniero]

I'm a firm believer that the only true way to wealth is to spend less and not let yourself get caught up in keeping up with the Joneses. Most people, as they make more money just seem to buy nicer things, move to bigger houses, buy nicer cars and shiny gadgets they don't really need. Once you have this "lifestyle inflation" you end up not saving any more with your higher-paying job than you did when you just entered the workforce.

I really try to live by this mantra, but lately I've noticed a general "creep" in my expenses. Partially it's due to moving to a higher cost area (LA to Bay Area) but also I think it's due to me saying "eff it" instead of really trying to get good deals lately combined with more travel in the past couple years.

Any thoughts on strategies or tactics to avoid this trend and ward off my lifestyle inflation?

The easiest way is to avoid opportunities to spend money.

 

[SC Trojan]

The easiest way is to avoid opportunities to spend money.

True. I spend a lot of time looking at slickdeals and fatwallet, but in reality they don't save me money because I buy a bunch of stuff I don't need because it's a good price.

 

[El Ingeniero]

True. I spend a lot of time looking at slickdeals and fatwallet, but in reality they don't save me money because I buy a bunch of stuff I don't need because it's a good price.

My thing is that I've started to eat out more, because cooking eats into MS time.

 

[El Ingeniero]

But as far as shiny gadgets, I'll probably be putting together an overclocked, water cooled desktop computer and buying a decent coffee grinder.

 

[TheBOSman]

But as far as shiny gadgets, I'll probably be putting together an overclocked, water cooled desktop computer and buying a decent coffee grinder.

In most situations, the overclocked water cooling is a bit over the top. Take it from someone with a custom built ATX full tower, i7, Sapphire Radeon HD 7970,
all the other goodies etc. almost two year old desktop .

 

[Mel]

Our travel budget has certainly crept since I started this hobby. But really, I'm Ok with it. We will only like so long and we live modestly in most of the rest of our lives.

 

[Matt]

I'm a firm believer that the only true way to wealth is to spend less

Less than what?

 

[Fuerza]

In most situations, the overclocked water cooling is a bit over the top. Take it from someone with a custom built ATX full tower, i7, Sapphire Radeon HD 7970,
all the other goodies etc. almost two year old desktop .

Computer guys start a build thread in the general forum, please. I'd like to learn how to build a new computer. I need to replace my old Vista powered dinosaur.

 

[Barb]

But as far as shiny gadgets, I'll probably be putting together an overclocked, water cooled desktop computer and buying a decent coffee grinder.

Fastest way to improve the quality of your coffee is to invest in a decent grinder. You will notice the difference immediately. Totally worth it.

 

[credipig]

One of the best ways to beat inflation is to have a 30-year mortgage, especially with our current low interest rates. While rents and home prices increase over the next 30 years, that P&I locked in now will remain the same (as long as you don't sell or refi). Right now I'm in the process of retiring from the Air Force. With that, I am very much looking forward to finally settling down with a brand new 30-year extremely low fixed rate.

 

[SC Trojan]

Less than what?

I guess less than you have to. I think most people think "how much can I spend on this?" versus "how much do I have to spend on this?" For instance, once when I was looking at buying a car the salesman started asking me how much I made so that he could calculate a monthly payment. It struck me as just so weird, so foreign. The price of a car shouldn't have anything to do with my salary, but I guess for a lot of people they spend what they make...

 

[Matt]

I guess less than you have to. I think most people think "how much can I spend on this?" versus "how much do I have to spend on this?" For instance, once when I was looking at buying a car the salesman started asking me how much I made so that he could calculate a monthly payment. It struck me as just so weird, so foreign. The price of a car shouldn't have anything to do with my salary, but I guess for a lot of people they spend what they make...

Well, if the cost of the car is $300 per month and your disposable income is $250 it is a relevant question.

Ultimately you need to spend less than you earn in order to save, equal to in order to break even, and more than to get into debt.

However, it is important to note that not everything should be the cheapest thing, let me tell you that spending a few more bucks to buy Pampers vs the cheapie brand has saved me a lot of work Similarly, you could buy the cheapest insurance and get less coverage, or rent the cheapest apartment and live an extra hr from work.

Personally, I don't buy into the super frugal approach, I would rather buy what I want (not what I need) but in doing so pay less than expected. As such I do have many luxuries, but I don't pay market price for them.

 

[SC Trojan]

One of the best ways to beat inflation is to have a 30-year mortgage, especially with our current low interest rates. While rents and home prices increase over the next 30 years, that P&I locked in now will remain the same (as long as you don't sell or refi). Right now I'm in the process of retiring from the Air Force. With that, I am very much looking forward to finally settling down with a brand new 30-year extremely low fixed rate.

Yes, this is really a good way to avoid general inflation. Even better is to pay it off, be debt free and have no exposure to housing price fluctuations.

Right now I'm renting because I'm worried about a housing bubble where I live (Bay Area), but I own a couple properties in other areas, so I am able to take advantage of inflation by increased value of those properties.

 

[Matt]

Yes, this is really a good way to avoid general inflation. Even better is to pay it off, be debt free and have no exposure to housing price fluctuations.

I'm wondering about that - if inflation is about 1.7% now, which one could argue is quite low.... that gives us a spread between that and the current rates- say 2.3% or so for the housing fluctuation side. As inflation rises, the fluctuation decreases. I've been thinking hard about picking up a little debt...

 

[smittytabb]

As such I do have many luxuries, but I don't pay market price for them.

This aligns with my own lifestyle choices. I would not want to pay full price, no matter how much money I had. If at all possible, I want to find a way to get a bargain, or a deal, or some way to find more value. Part of that involves both knowing what quality is, and knowing what things cost so that you recognize an opportunity. Another part is recognizing what you actually care about. I learned early on that experiences were more important than things, at least to me.

 

[Haley]

All I can say is how we did it.
We just auto deduct into savings. Well beyond 401k and IRA. If income went up by 4% we put 4% more into savings. We also put 50% of bonus money away. We maxed out ESPP too, that is just free money in our case.

We spend more than we did 20 years ago. We save more too.

There are many paths to that end, but put the money away off the top. More than you think you can afford to. And then surprise yourself. I put our car insurance payments into savings, figured I would just pull it out 2x a year to pay the bill. Then I forgot I'd done that and saved the money out of our regular checking account too. Bonus saving.

In large part we saw what a certain lifestyle did to friends and family. We didn't want to raise our kids that way. We live in the 2nd best school district in our area because the best one was too monochromatic. My kids are spoiled, but at least they know it, and they understand how much of life is just an accident of birth. Right family, right time, right place.

 

[Haley]

I'm wondering about that - if inflation is about 1.7% now, which one could argue is quite low.... that gives us a spread between that and the current rates- say 2.3% or so for the housing fluctuation side. As inflation rises, the fluctuation decreases. I've been thinking hard about picking up a little debt...

Me too.
I'm starting to think the possible upside outweighs the possible downside. Not by much, but maybe enough.

And 100% agree about Pampers. Some things I'd even pay full retail for.

 

[BuddyFunJet]

Me too.
I'm starting to think the possible upside outweighs the possible downside. Not by much, but maybe enough.

And 100% agree about Pampers. Some things I'd even pay full retail for.

As someone who came VERY close to going bust 30 years ago, debt for me is always bad. No matter how much financial or tax sense it may make, the emotional/comfort price is way too high for me. Similar to the way people who lived through the depression view debt.

 

[El Ingeniero]

In most situations, the overclocked water cooling is a bit over the top. Take it from someone with a custom built ATX full tower, i7, Sapphire Radeon HD 7970,
all the other goodies etc. almost two year old desktop .

I do serious number crunching. Restoring/remastering tango music transcribed from old 78 RPM records. Heavy duty statistics on financial data.I do most of my work on a first gen Core i5 laptop with 8 gigs RAM. Not even close to fast enough.

Noise removal on 3 minutes of hi res audio takes hours. The tools I use are not multithreaded, so clock speed and cache efficiency are the critical factors. The difference between 2.0 GHz and 4.5 GHz means I'll be spending less than half the time on each track. Plus it's audio work ... water cooling would be useful even if I wasn't overclocking.

Similar thing on financial projects. I'm playing with financial statements. Current projects include:

• automating the process of turning footnotes from 10K reports filed with the SEC into adjustments to financial statements to yield more accurate insights into the financial performance of companies
• determining shareholder yield (dividends + stock buybacks + retirements of debts)
• detecting accounting shenanigans
• pulling small cap holdings out of hedge fund 13F reports and playing with different ways of analysing the holdings to maximize the return on alpha cloning strategies.

The financial analysis thing takes considerable memory bandwidth, so low CAS latency is the ticket more than overclocking.

 

[El Ingeniero]

This aligns with my own lifestyle choices. I would not want to pay full price, no matter how much money I had. If at all possible, I want to find a way to get a bargain, or a deal, or some way to find more value. Part of that involves both knowing what quality is, and knowing what things cost so that you recognize an opportunity. Another part is recognizing what you actually care about. I learned early on that experiences were more important than things, at least to me.

My mother taught me that only fools pay full retail price.

 

[Sooner]

I am guilty of inflation; however now I have to think about the cost of my time. My time now is worth a lot more than it was when I was a young adult, so I don't shop around as much. And yes, sometimes pay full retail (Mom would be sooo disappointed). But I have the discretionary funds to take advantage of mistake fares, etc. that I didn't used to have. That's what I like about the forum--it's a great place to hear about all sorts of breaking deals.

 

[SC Trojan]

Well, if the cost of the car is $300 per month and your disposable income is $250 it is a relevant question.

Ultimately you need to spend less than you earn in order to save, equal to in order to break even, and more than to get into debt.

However, it is important to note that not everything should be the cheapest thing, let me tell you that spending a few more bucks to buy Pampers vs the cheapie brand has saved me a lot of work Similarly, you could buy the cheapest insurance and get less coverage, or rent the cheapest apartment and live an extra hr from work.

Personally, I don't buy into the super frugal approach, I would rather buy what I want (not what I need) but in doing so pay less than expected. As such I do have many luxuries, but I don't pay market price for them.

Well I guess there's always a trade-off. Buying really cheap stuff that is also poor quality can end up costing you in the long run versus buying quality stuff and not wasting a lot of your time dealing with hassles.

Really what I think of in lifestyle inflation is things that people buy that don't make them happier, but they buy because they think they will be happier. To each his own on exactly where that line is. For instance is staying at a 5-star hotel in Hawaii actually any more enjoyable than going to the local lake or mountains, staying at a cheap hotel, hiking all day and eating at Subway for dinner? We've been taught to think it's "better" but in reality some of my best travel memories were at the low end of the budget. Is buying a granite countertop really going to make you happier? Is having a Lexus or Mercedes really better than a used Honda or Toyota?

I really like the comment about automatically taking money out of your account. That was the method of one of my favorite authors on this topic (and fellow Trojan) David Bach. I read his book the Automatic Millionaire when I first started work and it really made a lot of sense to me. The crux is that people that see money in their bank account have a tendency to want to spend it, so best to just automatically deduct money every month and then you will adjust to what you have. Of course, I only did that for a little while, then I got caught up in a mortgage and said I'd only stop for a little while, then the financial crisis hit and like everyone I was focused on just weathering the storm. Now I just accumulate a pile of money then randomly transfer it over to my brokerage account now and then.

 

[SC Trojan]

I'm wondering about that - if inflation is about 1.7% now, which one could argue is quite low.... that gives us a spread between that and the current rates- say 2.3% or so for the housing fluctuation side. As inflation rises, the fluctuation decreases. I've been thinking hard about picking up a little debt...

From a purely financial standpoint it is a great time to get cheap debt. If you are buying a car now, it's better to get a 2% loan on it and park the $20 K in a dividend portfolio and get 4% cash every year, subject to market risk of course. In fact, PenFed will refinance your existing car if you own it outright and you could take on some cheap debt that way.

My new year's resolution this year was to aggressively pay down my debts, but I couldn't pass up refinancing my 5.125% 30 year fixed for a 2.25% 5/1 LARM at my credit union. Every year I will save about $3,000 in interest and even though it resets in 5 years, it's such a low principal by then that I could just pay it off.

I did pay off my 8.5% 2nd mortgage on my condo. I had kept it around for a while because the place was so underwater I was seriously considering a strategic foreclosure. Now that the market has gone up, that is not really a smart option, so I loaded up my BlueBird every month and paid down $5 K / month until it was gone. At first I was disappointed that I spent >$10 K in interest over 7 years on a $33 K 2nd mortgage, but then I realized that I actually had higher returns than that on my stock portfolio following the stock market crash, so I probably netted out ahead.

With all this being said, I still think there is an advantage, maybe only psychological to being debt free. I want to get in a position where my rental properties are all paid-for and I'm just collecting money every month. I think that's the "old school" way of being rich, where you are really insulated from downside risks (though you are not exposed to upside) associated with the market and economy.

 

[Matt]

From a purely financial standpoint it is a great time to get cheap debt. If you are buying a car now, it's better to get a 2% loan on it and park the $20 K in a dividend portfolio and get 4% cash every year, subject to market risk of course. In fact, PenFed will refinance your existing car if you own it outright and you could take on some cheap debt that way.

My new year's resolution this year was to aggressively pay down my debts, but I couldn't pass up refinancing my 5.125% 30 year fixed for a 2.25% 5/1 LARM at my credit union. Every year I will save about $3,000 in interest and even though it resets in 5 years, it's such a low principal by then that I could just pay it off.

I did pay off my 8.5% 2nd mortgage on my condo. I had kept it around for a while because the place was so underwater I was seriously considering a strategic foreclosure. Now that the market has gone up, that is not really a smart option, so I loaded up my BlueBird every month and paid down $5 K / month until it was gone. At first I was disappointed that I spent >$10 K in interest over 7 years on a $33 K 2nd mortgage, but then I realized that I actually had higher returns than that on my stock portfolio following the stock market crash, so I probably netted out ahead.

With all this being said, I still think there is an advantage, maybe only psychological to being debt free. I want to get in a position where my rental properties are all paid-for and I'm just collecting money every month. I think that's the "old school" way of being rich, where you are really insulated from downside risks (though you are not exposed to upside) associated with the market and economy.

Yep, good thoughts here. Personally I went from being 'in debt' (the kind where you are burned by it) to debt free vowing to not get into debt again, but now I look at the equity in my home and the temptation to pull some of that out and acquire an investment property is strong...

Your last point about 'old school rich' I think we should differentiate debt and negative net worth. It is perfectly acceptable to have debt and a positive net worth, since I'm pretty sure that even super rich people use debt to finance acquisitions.

 

[loves2fly]

While we like to enjoy the finer things in life, we're also one of those who prefer not to pay full price for it. I have a stockpile of non perishable goods bought during loss leader sales two years ago. I get sticker shock when I see the sale prices now are higher than their regular prices a year ago. I have the luxury of just focusing on fresh food sales without worrying about how much paper products/HBA (health, beauty aids) goods are now.

regarding test drive offers, DH and I find them worthwhile if they offer us $100 or more in PPGCs. We know exactly what we like and don't get pressured to buy one. All our vehicles are paid for, we have no plans of adding another one anytime soon.

 

[Matt]

Since there are a few comments here about not paying full retail, I decided it would be fun to have a quick competition. I want to buy a Range for the new house, per my comments here it is not the cheapest, but I want to pay the cheapest price I can for it.

If anyone is game, I have a $100 for the best price you can come up with:

http://saverocity.com/forum/threads/the-cheapskate-challenge-with-a-cash-prize.37652/

 

[El Ingeniero]

Fastest way to improve the quality of your coffee is to invest in a decent grinder. You will notice the difference immediately. Totally worth it.

Picked up a Capresso 560 in stainless steel. Small Business Saturday freebie priced at $140.

 

[MickiSue]

Way back, El I, you mentioned the time cost of cooking. Find some old reruns of Rachel Ray's "30 Minute Meals" on Food Network, and see how she does it. Seriously. I was burned out on racing to get meals on the table for a horde of hungry teenagers, and had gotten lazy.

But I re-found the fun in looking at what was there, and putting something good together with it, in a short time. She became my lunchtime companion, back when I first started working from home.

30 minutes from nothing to homemade soup, fancy main dish or specialty pasta is much less expensive, both in time and money, than ordering from the busy fast food place; definitely less than even the lowest tier sit down restaurant.

Not to mention so much better for both your psyche (I made this!) and your nutrition.