Comments on: The Math That Explains Why Lifestyle Inflation is a Wealth Killer

By: Zach

Zach — Thu, 31 Jan 2019 20:25:46 +0000

In reply to B at Fire The Boss. Thanks B! Glad to hear you liked this one!

By: B at Fire The Boss

B at Fire The Boss — Sun, 27 Jan 2019 12:44:44 +0000

Great post visualising this well known phenomenon. It’s widely advised, but this post makes it really clear.
I have increased my spending from when I got my first paycheck (earning 29k per year) to where I am now (50k + bonus) only a little. Every raise and every bonus I receive now goes towards my savings. I honestly don’t know what else I have to spend money on on top of what I already do.

By: Jeff

Jeff — Sat, 26 Jan 2019 18:05:42 +0000

This is an awesome write up and explains what I was just explaining to a couple buds at work. They can’t belive I only live on half my paycheck. Once daycare is over and I get my 14yr raise we will be at a 48% savings rate and still living really well! Like you said In your conclusion, it’s all about being content with what you have and being happy with less.

By: Financial Shaper

Financial Shaper — Sat, 26 Jan 2019 09:00:24 +0000

Hi Zach
Fantastic read, the calculations and graphs really visualize how important it is to focus on the cost base. Increasing the savings rate over time is a wealth and freedom booster as it means that lifestyle inflation is under control. That’s why I like to keep an eye on our Jaws Ratio, the difference over Income growth rate and growth rate of our costs. When the difference (Jaws Ratio) is positive, a household or company is building wealth over time, otherwise – with negative Jaws Ratio – Financial resources are not used efficiently, as your calculations and graphs so clearly show. There might be a year with negative Jaws Ratio in our household but on average, we had positive JRs over the past ten years.
Again, great read and thanks for sharing.
Cheers

By: Azrael

Azrael — Fri, 25 Jan 2019 08:44:30 +0000

I would see it as a corporate organization where we focus on keeping costs down.

The bottom line cannot be allowed to rise in tandem (or worse more) with the top line, it must always be lower or best, none at all.

By: Caveman

Caveman — Thu, 24 Jan 2019 23:03:37 +0000

Good to see all of that mathed up.

One of the best pieces of advice I was given when I started my career was to say half of any pay rise that I got. If I never had it I would never miss it. While I wasn’t on the FI path for years after I started work it’s meant that my lifestyle has kept relatively modest. Particularly as, after a while, I didn’t know what I wanted to spend more money on so I saved almost all of my pay rises. We didn’t quite live like students, but we weren’t that far away.

That all meant that when we had kids it was no real issue for my wife to drastically cut back her hours. We weren’t spending what we already had so, financially, our lifestyle didn’t need to change (obviously it changed in a lot of other ways though!)