How to live within your paycheck

With a new, higher paying job or a raise often comes "lifestyle inflation"–the temptation to spend wildly beyond your means. Here are the ways avoid overdoing it.

Finbarr O'Reilly/Reuters/File
A woman carries shopping bags on Oxford Street in London, December 13, 2011. According to Hamm, earning a higher paycheck can lead to spending beyond your means, of you aren't careful.

I can still remember how it felt to get my first real paycheck at my first real job after college. It came in the mail, and I stood by the mailbox at my old apartment building ripping open the envelope as soon as I realized what it was and holding that check in my hand. It was more money than I had ever seen at once in my life.

I splurged with it – and with the next check, too. I felt like I was celebrating actually becoming an adult with a real job and a real career path.

Before long, though, I had established a pattern of normalcy that involved spending quite a bit of money. The ramen noodles I had eaten in college were no longer good enough for me. Eating the $3 special at the Chinese restaurant near where I lived no longer satisfied my desires. Used video games from three years ago were quickly replaced by the newest releases. My old shirts, accumulated over the years of college, quickly vanished and were replaced by crisp new clothes.

I was making good money. I had to live like it, right?

I established a pattern of spending enough so that I was living paycheck to paycheck. I was buying far more stuff than I actually needed, but it was all necessary for the standard of living that I had adopted.

Then my student loans went off of forbearance.

Then I needed to buy a vehicle and car payments began.

Then my wife and I had a first child and the costs of diapers, formula, and child care began.

The problem was that my lifestyle had inflated beyond what my paycheck left me with after these expenses, and it led us almost into disaster.

It was a long and difficult path to recovery from this situation, but I know now that it would have been far better off had I never allowed my lifestyle to inflate in the first place.

Over the past several years, we trimmed our lifestyle down so much that there has often been temptation to enjoy some degree of lifestyle inflation once again. For the most part, we’ve avoided that temptation. Here’s how we’ve done it.

We’re conscious of lifestyle inflation. It’s a phenomenon we’re aware of and one that we talk about regularly. We watch for examples of where our regular spending has gone up and we talk those examples to death, usually finding that we’re better off keeping our spending low.

We stick with the things we enjoy. If we have fun going on a family walk in the park, why do we need to suddenly be taking our kids to FunLand and drop $20 or buy them a bunch of stuff to play with at home? If we enjoy our home-cooked meals around the dinner table made with simple and tasty ingredients, why do we need to start going out all the time and dropping $50 per meal? If we love playing an old familiar board game with our friends after a potluck dinner, why do we need to add expensive options to our social schedule? If the eight year old car we bought off of Craigslist serves our needs quite well, why buy a new one?

We splurge with enjoyable activities, not things. I mean this with all seriousness: my biggest splurge nowadays is a free uninterrupted hour or two of reading or playing a game. If I find that my daily tasks are done and I have an hour to crack open a novel or play a game of League of Legends or something, I really feel like it’s a splurge. Time is truly the valuable commodity in my life.

Beyond that, when we do open up our wallets, it’s usually for a special activity, usually our summer vacation. I enjoy going to Gencon each summer, my wife often visits her family in Seattle, and we usually take a family trip, too. Those are our biggest annual splurges.

We keep a lot of options on the table. One thing I’ve found is that once you start inflating your lifestyle, you stop really looking at certain options. Usually, free and inexpensive things are immediately off the table because, after all, you’re above that, right?

When we’re looking for something to do, we don’t start with movie listings or expensive events. We look at things like our local community calendar or the parks and recreation schedule. We look around our house at the multitude of things to do at home, from board games and art projects to books and home improvement tasks. There are more cheap and free things to do than we ever have time to get done, so why spend a lot of money on expensive things?

We maintain friendships with people who have similar values. Our closest friends have (more or less) the same values on lifestyle inflation that we do. All of us make a solid income, but our social events together are usually potluck dinners with board games afterward.

Most of the rest of our social circle consists of people that we’ve come to know thanks to free activities through our local parks and recreation department, mostly parents of children of similar age as our own.

We also live in a neighborhood where most of the people seem to have roughly the same standard of living that we do. Yeah, a few people have nice cars, but of the families nearest us, I can quickly see a pair of used vans and an ancient compact car. None of the houses are particularly nicer than ours, either.

Simply put, we don’t have the social pressure to engage in lifestyle inflation, and we’re happy to keep it that way.

A lot of our income is automatically transferred away before it reaches our hands. We pay almost all of our bills automatically. Beyond that, we also transfer away money for each child’s college savings plan, savings accounts for many of our future goals, and accounts for irregular bills like property taxes. We simply don’t leave behind enough for us to inflate our lifestyles very much.

Avoid lifestyle inflation. You’ll be happy you did.

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