Tips for college graduates: Avoid lifestyle inflation!

Lifestyle inflation

My personal experience with lifestyle inflation.

It’s that time of the year again, millions of fresh faces stepping into the working world. What’s the best financial advice for new grads? Avoid lifestyle inflation!

As a new grad you enter the working world full of energy and expectations. One big expectation is a lot more disposable income and all those fun things that come along with it. It’s a lot of financial fire power you now hold. The question is how to make it count? Where should that ballooning bank balance go? One financial tip for college graduates; avoid the typical lifestyle inflation and keep some of those new found dollars for yourself.

Here are some of those typical causes of lifestyle inflation. By no means is this an exhaustive list, just the most common causes in my experience.

Typical Causes of Lifestyle Inflation:

  • Leasing (or financing) a flashy new car
  • Expensive dinners and bar nights
  • New toys (TVs, electronics, laptops, phones, motorcycles*, boats etc)
  • New clothes/wardrobe
  • Buying a house or condo
  • Buying all brand new furniture

But how do you maintain a healthy lifestyle full of fun and excitement without spending 100% (or more!) of your new salary? Here are a few tips for avoiding lifestyle inflation.

Pay Yourself First:

Set an automatic amount to come off your paycheck directly into a savings account. Use this money for an emergency fund, down payment on a house, buying a car with cash, or early financial independence. Start with a simple budget and learn how to control your expenses. You’d be surprised how a few $’s here and there add up to over +10% of your net income. Aim for a 20-25% savings rate at first and increase that over time with future raises.

Bank those Salary Increases:

Put a large portion of any salary increase automatically into your savings account. Putting away 75% of your net increase is a good guide. Leave yourself with 25% as a reward for your hard work but put the rest into savings each month. This will help you increase your savings rate from 25% to 50-60% over time.

Choose Friends Wisely:

It’s not hard to spend $150 on a fun night out at the bars, but it’s also not hard to spend $20 and have the same amount of fun. The difference is who you’re with and where you go. Friends whose social pressure causes you to spend more will cost you dearly, both in the short term and in the long term. Focus on friends who value relationships over material possessions and flashy spending.

Pick the right Status Symbols:

Status symbols are easy ways to waste money. Typical status symbols include a fancy car, designer clothes, expensive meals/bar tabs, high tech toys etc. Purchasing these items typically result two negative effects. Number one, they suck up a lot of your disposable income. Number two they result in a form of self-segmentation, you’ll find yourself in a new high spending social group who values this type of consumer lifestyle. Less expensive status symbols include personal health/fitness, life experiences, travel and your personal attitude, optimism and confidence. These things also affect your social status but are far less expensive. These social groups also put less value on money and consumption.

Buy things Slightly Used:

One of the great things about lifestyle inflation is that everyone else is doing it! Take advantage and get great items for a fraction of the cost by buying slightly used from Craigslist. Decide on what you need and start browsing Craigslist periodically. Guaranteed, you’ll find exactly what you need and it will cost you pennies on the dollar.

Invest in Quality:

No one said you can’t spend your hard earned money, just make sure you invest in quality items, not impulse buys. As a general rule of thumb you should spend 1hr on research for every $100 spent. Need a new bed? Invest in one that is high quality and will last for +10yrs and provide a restful sleep. Spending $2000 on a high quality bed means at least 20hrs of research. This rule will help you avoid impulse purchases and instead make high quality consumer investments that will definitely outlast cheaper items.

This is a very exciting time in your life! There will be lots of new people, places and experiences. Follow the tips above and you will avoid the financial setbacks typically caused by lifestyle inflation. Set yourself up for a long life of financial happiness and avoid the typical lifestyle inflation experienced by new grads.

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* This cause I’m very familiar with, that was my Honda VFR you see at the top of the post. Although fun for a short period of time, it ended up being a huge financial mistake. Once my new toy became part of everyday life the temporary high wore off and all I was left with was a financial hangover. Don’t do this!

Have a similar experience with lifestyle inflation? Make a comment below.

10 thoughts on “Tips for college graduates: Avoid lifestyle inflation!

    • Ah, I feel your pain, that Honda VFR was not cheap! Live and learn, won’t make that mistake again :)

      Thanks for reading Sam.

  1. Good advice! After I finished college, I kept my expenses basically the same. My housing costs went up a bit recently because I bought a condo, but my groceries, bills and other expenses have remained the same. I just get to save and invest more. :)

    • Us as well CF. Fresh out of school we resisted the urge to upgrade all aspects of our lifestyle at once.

      We did enjoy some lifestyle inflation but mostly our upgrades were modest and happened slowely over time.

      The extra $’s instead went toward a downpayment on a house and investments.

  2. The one I am glad you added was pick your friend wisely. So often we judge ourselves based on what others are doing or have. Failing to understand that a lot goes on behind the scenes that we may not know about. Right now increases were going to college debt as where bonus and income taxes.

  3. Great advice; you have your stuff together.

    The friends one is difficult, for me at least. In my observation, most people aren’t the frugal type. For example, I have some friends who are really great solid people, but feel they need to stay at high end hotel chains when we travel. This drives me nuts; just a huge waste of money.

    I can relate to the bike. The first thing I did when I got my first real job is run out and buy a new Yamaha YZF600. It was fun, but I put 1,000 miles on it a year. I don’t even want to think about what it cost me per mile with insurance and other expenses.

    I don’t have a bike now and just can’t justify another one. I don’t have a commute, so it would only be a toy. I have to admit though that every once in a while, I find myself perusing old Honda 919s on Craigslist.

    I really like the older VFRs too. The new one is too big and doesn’t do anything for me, but the older ones are great. I read about people getting ridiculous use out of them (200K+ miles) and having no issues. Bulletproof. Do you still have yours?

    • Thanks for the feedback Mr. 1500!

      Unfortunately I sold my VFR a couple of years ago. I came to the same realization, per ride it was costing me ~$200.

      Solid bike though, took it on a week long trip to Boston with my wife and it performed amazingly. But still not worth the expense.

      Thanks for the comment!

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