Hi There, If you don’t know me by now, I’m Mr. Prairie FIRE. I fell in love with the Financial Independence Retire Early (FIRE) movement and this blog is all about the cool and wonderful things I’ve learned from the community. In my last post, I told you about an insidious cancer that has invaded our financial lives: Lifestyle Inflation (cue ominous 1970s horror music). I defined lifestyle inflation as any kind of social or cultural pressure to spend just because “you can afford it.” It may not seem like a big deal, but that’s what makes it so deadly. It starts out small at first and grows as time passes by. For many of us, I believe it is the root cause of our financial issues and the road to debt.
If you recognized the symptoms of lifestyle inflation, great. The first step to recovery is knowing there is a problem. Next is to arm yourself with knowledge on how to fight lifestyle inflation.
More Money Won’t Solve the Problem
Lifestyle inflation is hard to pin down and has a positive correlation with income. For many people, money problems have little to do with how much they earn and everything to do with the financial choices they make in life. You can make a six figure salary and not have wealth. The ironic thing is that you can’t beat lifestyle inflation by earning more money. Instead, this feeds the beast and you become an even bigger target.
What Can We Learn from the Martial Art of Jiu Jitsu
The martial art of Jiu Jitsu can be translated into the “art” or “technique” and represents manipulating an opponent’s force against themselves rather than confronting it with one’s own force. I am not a martial artist, but I can appreciate the philosophy of using a defensive tactic against an enemy. In this case, lifestyle inflation is a formidable enemy against your financial and social well being. It’s well armed, has billions of marketing dollars and an infinite amount of time and resources to pluck your hard earned dollars away from you and into the pockets of others. It’s important to be prepared, build good habits and be disciplined. This takes practice.
4 Radical FIRE Power Moves
On your path to financial independence (FI), the temptation of lifestyle inflation will be constant. The thing is you need to be ready ahead of time to resist and counter its influence. In my own journey to FI, I’ve discovered four radical moves that can give you the power to overcome any future encounters that might get you off track from achieving your true financial goals.
1. Start with a Good Foundation: Budget Like a Boss
In the sports world, there is a popular saying that offense wins games, defense wins championships! This is also true for personal finance. If your goal is to retire early or even retire at all, it is crucial you set yourself a budget. It should be the foundation to your financial life and you need to stick to it. The way you know that you are winning the battle against lifestyle inflation is that at the end of each pay period you have more money coming in (income) than going out (expenses), and little to no debt due to consumer spending. These little wins compound over time and your future self will thank you.
2. Discipline & Training: Live Like a Student
The most exciting and financially stressful point of our adult lives is when we first move out on our own and go to post-secondary school. Financially, we are caught between a rock and a hard place. If you’re a full-time student, you’re making little-to-no money in the year and building up student loan debt. Every dollar counts and has significant value. You have to be disciplined and make tough decisions in order to live on less. But for some reason, after we graduate those dollars seem to be less valuable. With a student mentality, you have two things that give you strength. First, you value the limited money you have. It is important to value every dollar you have and realize its presence in your life. Second, as a student you are trained to live on less. I remember being a student and needing only a place to lay my head and a desk for studying. I shared my place with up to 4 other people. I still enjoyed a life filled with experiences, friends, and health.
3. Be Strategic Thinking: Don’t Buy New
Here’s the thing. Buying new is for suckers. Ok – that’s a bit extreme, but there is a premium you will pay for buying that shiny new thing. Lifestyle inflation attempts to both distract you and get you off your game. It plays to your insecurities (you’re not good enough without this thing) or your desires (buying this will make you feel fulfilled or make your life better) and lures us all into its trap. If you do need something of value to you, there are a ton of resources out there that allows you to get what you need for free or for a significant discount. Here is a list of things that you do not have to buy brand new:
- Kids Items
The list goes on and on, but I think you get the picture. By looking for second hand goods, you can save a ton of money and you may even help reduce waste at the same time. You should also consider selling some of your old items collecting dust in your garage or crawl space. That is literally your hard earned money getting tied up in things that do nothing for you in the present.
4. The Ultimate Finishing Move: House Hacking
I’ve saved the best for last. Home-ownership in Canada (and the Western world) is very much ingrained in our cultural psyche. It is the biggest “investment” you will ever make in your life. Now, the debate on whether to own or rent is never ending, but there is a beautiful middle ground. So when the siren call of lifestyle inflation says “you need to stop throwing your money away paying rent and own a home” don’t fret too much. There is an advanced, yet graceful countermove to this cultural pressure. It’s called house hacking. Here are the steps toward house hacking:
- Step 1: Feel pressure to own your own home.
- Step 2: Instead of purchasing a stand-alone single family home, buy a multi-unit with 4 or less separate living spaces.
- Step 3: Live in one unit.
- Step 4: Rent out the other units.
- Step 5: Take rent from other units to pay for mortgage and save the rest.
That’s it. This move is not for everyone, because not everyone wants to be a landlord or deal with tenants. But, if you are able to do this successfully, your financial future will be very bright indeed, and others will be in awe of your genius.
The Importance of Asking Why
The issue around lifestyle inflation has a little bit to do with the way of the world and everything to do with your relationship with money. Ultimately, what is needed is a shift in mentality. Ever since I started pursing FI, I have taken the steps to free myself from the chains of consumerism and put on the thinking cap of an investor. Whenever I have an opportunity to invest/spend money, I always ask why. Why am I buying this house? Why do I want to buy this brand new car so badly? Why in the world did I go into debt to get an education? Is the answer because everyone else is doing it? Am I doing this because it is expected of me?
We are all susceptible, me especially, to fall for lifestyle inflation’s empty promise of fulfillment. You know, you might feel great in the moment after you make that purchase, but in the long-term, we all know it won’t. I hope this post helps you on your journey to financial independence and provides you perspective.
Flame on my friend!
Mr. Prairie FIRE