You would think that those who make more money would have less financial troubles, but in many cases, you would be wrong. In surveys, people with higher income often report living from paycheck to paycheck.
This is because many wealthier people succumb to income inflation. This is a common human phenomena where those who make more money spend more on more expensive items and thus feel the need to make even more money. The millionaire struggling to afford the payments to keep his private airplane fueled, if you will.
Why does this happen? In short, because when many people make more money, they get a sense that they should live it up, buying more and more things. This can creep slowly and before you know it, one is spending hundreds of thousands of dollars a year on simple payments.
Whether you are wealthy or of modest means, these are three tricks to counteract this tendency:
The first is to think about what you really want in your life. Too often people assume that because they are wealthier, they should want and do the things that other wealthier people seem to want to and do: to buy a big house in whatever neighborhood is considered “nice,” buy expensive clothes, eat out at fancy restaurants, etc. But are these things you actually want?
It is reasonable to shell out more for better quality or for the things one truly desires in life, but most of the time, more expensive does not mean better quality. Many luxury brands are not better in quality; they are just more expensive, and to a point, many fancier restaurants similarly do not have a similar increase in quality. In situations where the more expensive product has a useful feature for you, it can be worth it to pay more for it, but most often, restaurants or stores that charge more do so because people think of more expensive products as better, not because they are actually better.
Similarly, buy only the specifications that you need. This can include durability: paying a little more for something that will last a long time costs less money in the long run than having to replace it down the line. If you only need a normal computer with normal processing, shelling out thousands of dollars for the latest high-end portable “supercomputer” does not make sense. Some people (like software engineers) may need those specifications, but if you are not one of those people, don’t worry about it. Marketers often convince us to buy products beyond what they actually need.
Second, don’t buy on credit. People should not do this unless they absolutely have to, and those who are making higher incomes do not have to. (The less well-off often get trapped into buying on credit, crippling them with debt, but that is a topic for another article.) Spend the money you have, nothing more and nothing less. I am even hesitant to get out a loan and pay for expensive purchases: purchase what you can afford right now. If you are buying something that takes years to pay back, consider whether that thing is worth being overworked in a crappy yet well-paid job with an obnoxious boss to complete your payments, because that is in effect what you are doing. For example, would you rather have a cheaper used car that still gets you around but retire early? I have a friend who bought a second home in the countryside, which he never visits. Was it really worth it to him to have to work several decades to own a place he doesn’t do much with? No. It was self-defeating: to pay for his new home, he had to work a job that never gave him the free time to enjoy the home in the first place. Many major expenses like cars and a new home may not be worth sacrificing the majority of one’s life to.
Buying experiences like traveling to new parts of the world or having adventures can be a fulfilling yet strategic use of one’s wealth. If you can afford a few thousand dollars, spending it on a trip to some new part of the world you have never been to is likely a far more spiritually enriching use of money than using it for the first month’s down payment on a bigger house in another part of town. If your circumstances change, you can always claw back on experiences, but a mortgage locks you in for decades.
Finally, think for yourself about what is important for you and what you value. Many wealthier people simply enact the narratives of what it means to be wealthy they see around them consciously or subconsciously. They think, “Oh being wealthier means, I get a big house and a fancy car, eat fine foods,” and so on. This traps them into a certain lifestyle where they must work a very selective number of positions that can pay for such a lifestyle. What do you truly find meaningful? It may not be wearing fancy jewelry, and it may not be living in the standard place every other wealthy person lives in.
Like many humans, many wealthy people live with a type of insecurity, as if they have to prove their value to others. This can lead to them showing off their wealth as a sign of their status. “Look at me; I made it.” For those like this, their problem is internal: they need to work on themselves and figure out why they don’t value who they are. If they did value who they are, they would realize how useless and fleeting the approval of others (especially strangers they don’t know) actually is.
For others, they buy the things other wealthy people seem to buy rather than think through what they value and actually want in life. Unsurprisingly, these social expectations are ever expanding: companies will always present us with another thing we need to get until we stop listening to them. Pausing and thinking for yourself about what you actually want knocks us off of that treadmill.
I hope this helps in thinking about how to deal with income inflation. Don’t follow others with means into this trap. Swim against the current of our society telling us to spend spend spend and figure out how to enjoy your life on your own terms.