Poll

Lets say you have a 10% raise tomorrow (of your net of taxes pay), how will your spending increase over a year or two? Be honest

0% : I am totally immune to lifestyle inflation
79 (39.3%)
1% to 2% : I can control most lifestyle inflation
70 (34.8%)
3% to 4% : I will save most of it
39 (19.4%)
5% to 9% : I have been delaying stuff that I can afford now but I'll save some
13 (6.5%)
10% + : I save enough already
0 (0%)

Total Members Voted: 193

Author Topic: Lifestyle inflation  (Read 12674 times)

pom

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Lifestyle inflation
« on: August 08, 2013, 03:32:02 AM »
I am just curious to know if most of us here have been good at fighting lifestyle inflation.

For me it has been a struggle that I mostly won but a struggle nonetheless:

I have been working for 17 years.
Gross pay increased 170% after inflation
Net pay doubled after inflation  - damn you progressive tax rates ;)
Spending increased slightly less than 20% after inflation (admitedly my wife pays part of the rent now).

So historically I am in the 1%-2% zone. I suspect that even with all of my good intentions, a 10% raise would result in a 2% increase in consumption; maybe not immediately but over time it will.

dragoncar

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Re: Lifestyle inflation
« Reply #1 on: August 08, 2013, 03:56:45 AM »
Well, I might as well crosspost the following observations about lifestyle inflation and FI:

I once ran the numbers with these rough parameters:  50% initial savings rate, 5% (real) annual raise, 5% (real) annual returns on savings.

If you maintained the 50% savings rate (i.e., you inflated your lifestyle with salary), it takes 25 years to reach a 4% SWR.

If you kept your original expense rate (i.e., no lifestyle inflation), it only took 15 years to reach the 4% SWR.  By that time you were saving 71%.

Obviously, the parameters matter.  But this lifestyle inflation has a large impact no matter how you slice it.

Even at a higher rate, say 80% initial savings rate (which is my personal savings rate), lifestyle inflation can increase your working years from 5 to 7 -- a 40% increase.

Unfortunately, I had been inflating my lifestyle as my salary increased (i.e., increased my spending by $20 for every extra $100 I earned).

steveo

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Re: Lifestyle inflation
« Reply #2 on: August 08, 2013, 04:18:31 AM »
I voted 0% but I've been terrible at this in the past and so now I don't think I will ever again raise my lifestyle via spending more money.

My lifestyle inflation in the past has also been big ticket items like the house and the car.

KMMK

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Re: Lifestyle inflation
« Reply #3 on: August 08, 2013, 05:56:45 AM »
My income and expenses going back to 2004. The expenses from 2004-2008 were actually a little lower than that, as I didn't subtract the money going towards my mortgage principle, but it was only $200 a month, so not that significant. But basically no significant change in expenses since 2004, even though my income has roughly doubled in that time.


arebelspy

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Re: Lifestyle inflation
« Reply #4 on: August 08, 2013, 07:22:31 AM »
Another easier way to look at it that I think people may be able to answer more honestly: if you got a $1000 (or 10000) bonus at work, how much would you save and how much would you spend?

Though we don't get raises (fixed government salaries), the wife and I frequently get income from side gigs.  We save 100% of it. 

The wife won some money on wheel of fortune a number of years back.  She stuck the money in the bank.

If you're happy with what you have now and your life now, why would you spend more just because you make more?  The amount you spend is completely unrelated to how much you make, once your needs and wants are met.
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PolarBeer

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Re: Lifestyle inflation
« Reply #5 on: August 08, 2013, 07:55:37 AM »
Keeping income and expenses separate in your spreadsheets and graphs is a good idea. I don't don't even track my income. There's no point. It is what it is. My spending and my net worth are the important numbers.

totoro

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Re: Lifestyle inflation
« Reply #6 on: August 08, 2013, 07:58:20 AM »
I voted 0.

I'm just not motivated by more stuff.  A few moves later and I am really motivated to have less stuff unless it serves a purpose.

As far as lifestyle inflation, I'd just rather stop working earlier and my existing quality of life is good.  Time is more valuable than stuff to me. I enjoy buying good quality things that are necessary used:  save money and reuse is a good combination.

Where we do spend more money is on home improvements.  I don't view this as lifestyle creep.  We can afford to, for example, put in an automatic watering system and new fencing.  We still take the DIY approach where we have the skill to save money and we know it increases value.

ender

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Re: Lifestyle inflation
« Reply #7 on: August 08, 2013, 07:59:08 AM »
I will save or give all money I receive from bonuses.

My lifestyle will inflate slightly if I move from my current location, because nearly by definition it has to (rent, utilities, and food are only $450/month).

Caoineag

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Re: Lifestyle inflation
« Reply #8 on: August 08, 2013, 08:00:08 AM »
Its my savings rate not my spending rate that has been creeping up over time.

Mr.Macinstache

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Re: Lifestyle inflation
« Reply #9 on: August 08, 2013, 08:04:57 AM »
I'm currently going through lifestyle deflation. But if people are making money and live well under their means I have no problem with lifestyle inflation as long as its responsible.

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Re: Lifestyle inflation
« Reply #10 on: August 08, 2013, 08:07:16 AM »
Quite the opposite. My income has gone up dramatically over the last couple of years, while my expenses have plummeted.

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Re: Lifestyle inflation
« Reply #11 on: August 08, 2013, 08:20:41 AM »
I'm actually just struggling with possible lifestyle inflation after getting my first promotion and raise (just happens to be 10% raise too). Even though it won't show up until the last check of the month I've already been fighting the ideas of lifestyle inflation in my head. So far the lifestyle inflation ideas are things that are reasonable and will need to be done eventually (like new clothes and a sofa for whatever apartment I get) or lead to more mustacian things, such as hair clippers. Luckily I haven't bought anything yet. The goal for when I do is to buy things that will last and be a little more grown up as I've still got things from when I was in college and if the things last they need to be able to grow with me. The only thing I've decided to spend more on is the apartment I'm looking to rent as now I feel more comfortable being able to afford it.


Knowing my self I might increase my lifestyle for a short time and then go back to saving once I've got a few things set up. So I guess I'll fall under the 5%-9%

fiveoclockshadow

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Re: Lifestyle inflation
« Reply #12 on: August 08, 2013, 08:39:21 AM »
We are doing lifestyle deflation right now despite constantly increasing salaries.  This really isn't saying much though, we could deflate quite a bit so there really isn't any sacrificing going on or anything.  I'd say during our inflationary period really the biggest increase was in housing and for the moment we are sort of "locked in" to that since we own.  I've deflated eating out a bit (could do more) and the gadget budget (wasn't that big percentage wise to begin with).  I need to in source a few things still.

So where we sit - double our salaries and we'd still be trying to deflate a bit.

martynthewolf

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Re: Lifestyle inflation
« Reply #13 on: August 08, 2013, 08:49:02 AM »
I'm trying to deflate where possible at the minute. I'm still paying of my debt emergency but only a couple months away now. I do think though that I might treat myself to something if I were to get a 10000 raise. But it wouldn't be more than %2 and it'd only be a one off.

SunshineGirl

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Re: Lifestyle inflation
« Reply #14 on: August 08, 2013, 09:23:59 AM »
My savings rate would remain the same, but that would still leave extra money to spend, and I would definitely spend it on home improvements and probably direct any extra beyond that toward travel.

We have a target date for retirement, and it's there for more than just "have we saved enough" reasons, so happily, we could spend any additional earnings -- and since we have things we definitely want to do to the house, that's what we would do.

renbutler

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Re: Lifestyle inflation
« Reply #15 on: August 08, 2013, 09:46:34 AM »
As a one-income family, we were doing okay paying the bills and saving for retirement, but we didn't have much extra fun money. I told my wife if she wanted to address any of the "wants" on our list, we would need to improve our income.

So, God bless her, she started working a few nights a week at the library. Now whatever she makes pretty much gets spent on the kids. So far, just a playset and an extra day of preschool, so not necessarily disposable things or boundless materialism. She generally supports my desire for FI.

But, anyway, I guess that sounds like we spent 100% of our extra money on lifestyle inflation. I do have a big raise coming in October, though, and I don't plan on loosening the purse strings significantly.

Undecided

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Re: Lifestyle inflation
« Reply #16 on: August 08, 2013, 11:06:21 AM »
I voted 0%, based on spending less now than we did 3 years ago, despite having had an additional child and making approximately 13% more now.

mpbaker22

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Re: Lifestyle inflation
« Reply #17 on: August 08, 2013, 11:30:30 AM »
I voted 0%  My expenses are mostly not tied to income.  I spend just under $1000/month on average, and I make slightly more than 2x that even after putting 25% in the 401K.

If income went up x10 I would likely increase expenses.  If income went to $0, I would likely cut all excess expenses ($300 food budget), but the elasticity of my income to expenses curve is pretty close to perfectly (in)elastic (depending on which axis is which)

Chowder

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Re: Lifestyle inflation
« Reply #18 on: August 08, 2013, 01:32:53 PM »
Another easier way to look at it that I think people may be able to answer more honestly: if you got a $1000 (or 10000) bonus at work, how much would you save and how much would you spend?

Though we don't get raises (fixed government salaries), the wife and I frequently get income from side gigs.  We save 100% of it. 

The wife won some money on wheel of fortune a number of years back.  She stuck the money in the bank.

If you're happy with what you have now and your life now, why would you spend more just because you make more?  The amount you spend is completely unrelated to how much you make, once your needs and wants are met.

Easy enough. I just put my entire bonus (25% of salary) towards my student loans. So it's safe to say my expenses wouldn't increase at all. I would see it disappear from my account as fast as it arrived.

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Re: Lifestyle inflation
« Reply #19 on: August 09, 2013, 06:46:01 AM »
The wife won some money on wheel of fortune a number of years back.  She stuck the money in the bank.


That's cool, she was on TV and whatnot? I always wondered how one gets on Jeopardy and those shows.

arebelspy

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Re: Lifestyle inflation
« Reply #20 on: August 09, 2013, 07:25:06 AM »
The wife won some money on wheel of fortune a number of years back.  She stuck the money in the bank.


That's cool, she was on TV and whatnot? I always wondered how one gets on Jeopardy and those shows.

She was.  They have a "wheel mobile" touring van that does auditions for the show that stopped by our college campus one day. After a few rounds of tryouts she was selected.
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MrsPete

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Re: Lifestyle inflation
« Reply #21 on: August 09, 2013, 07:28:40 AM »
I can say this is something that's become easier as I've grown older.  Perhaps it's that I've seen so many times how transitory is the fleeting high that comes with a new purchase.  Perhaps it's because I have experienced first-hand the power of saving /watching my financial security build.  Perhaps it's just that I already own most of what I want. 

arebelspy

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Re: Lifestyle inflation
« Reply #22 on: August 09, 2013, 01:18:21 PM »
Perhaps it's just that I already own most of what I want.

Absolutely this.  We hit a point a few years ago where we have everything we want.

If something new comes along that we want, or we need to upgrade or replace something old, we buy it.  Those are the exceptions, and in general we just enjoy the things we have.

Of course a continual upsizing in terms of house area would likely put one into a spiral of upgrading things for awhile, so being happy with your housing is the first start to that, IMO.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Jamesqf

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Re: Lifestyle inflation
« Reply #23 on: August 09, 2013, 02:42:04 PM »
Perhaps it's just that I already own most of what I want.

Pretty much that.  Also I have very little, if any, lifestyle inflation in the sense of an accumulation of small increments.  If anything, there's a bit of deflation, as I lower electric bills, swap the land-line for a $7/ cell, etc.  When my lifestyle costs change, it tends to be big jumps, like getting the horse or the airplane.

Albert

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Re: Lifestyle inflation
« Reply #24 on: August 09, 2013, 02:50:57 PM »
10% rise right now would make no difference to my spending, but the answer to this question depends too much from one's "life stage". Four years ago I almost quadrupled my income, but also doubled my spending mostly for a good reason.

TLV

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Re: Lifestyle inflation
« Reply #25 on: August 09, 2013, 02:53:02 PM »
This is a difficult question for me to answer. We are in the process of moving from a 1-bedroom apartment to a 3-bedroom house (expecting a 2nd child and 2-bedroom apts. were almost as expensive and far less convenient), so our expenses for the next year or two are going to go up regardless of whether I get a raise or not. I did get a big raise (~28%) a couple of years ago, without which we might have put a higher priority on controlling housing expenses...but we've cut our expenses drastically since then, because that's about the time we found MMM, so even with the higher housing expenses upcoming we'll still have lower expenses going forward than we did at the time of the raise.

Consciously, the only effect I think it would have is that we would go out to eat once to celebrate. But since we've done that at past yearly raises too, and we'd still go to the same caliber of place (~$30), that's just keeping the status quo rather than lifestyle inflation.

WageSlave

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Re: Lifestyle inflation
« Reply #26 on: August 09, 2013, 02:59:34 PM »
That it was phrased as a percentage is a little tricky.  Consider someone who makes $50k/year versus another guy making $500k/year.  That's a hypothetical windfall of $5k and $50k, respectively.  If both guys do the same amount of inflating in an absolute dollar sense, the max is that of the lower income guy.  That means one guy inflates by 100% of his raise, but the other guy only inflates by 10% of his raise.  Year after year, the lower earner's net savings rate has gone down considerably more than the high-earners.

Anyway, I went back and forth between the 0% and 1--2% answers, and settled on 0%.  After thinking about it, in the past, I've received some substantial raises, but definitely haven't inflated my lifestyle proportionally.  After after getting into the whole FIRE thing, I've been on a slow but steady march of lifestyle deflation.  So my SWAG is that I've never inflated my lifestyle by a whole 1%, but have maybe done 0.5% on occasion.  And my current goal is to stay much closer to 0% than 1%.

In the spirit of full disclosure.  If I was already FI, I might answer differently.  I can only speculate how my attitude will change once I reach that point.  One outcome is that I make a habit of lifestyle deflation, and I continue to discover more ways to be happy(er) without spending any more money.  I would call this the "pure MMM way", because I'm convinced MMM's income could go up 10% and he wouldn't inflate his lifestyle at all.

On the other hand, it would be easy to rationalize, "Well, I'm already FI, and have everything I need, so why not indulge my wants a bit?"

olivia

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Re: Lifestyle inflation
« Reply #27 on: August 09, 2013, 03:09:30 PM »
At this point in my life I would save it.  We had lifestyle inflation BIG TIME when my husband's income almost tripled about 2 years ago after a big promotion.  We bought pretty much everything we wanted (clothes, vacations, etc.), and ate out constantly.  We're reining it back in now and if/when I get a promotion, I plan to pretend it never happened.  The only bummer is I can't divert my direct deposit to multiple accounts...wish I could have part of it go straight to savings.  But now that I actually have some self control, I'll just do it myself!

ender

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Re: Lifestyle inflation
« Reply #28 on: August 09, 2013, 06:18:58 PM »
The only bummer is I can't divert my direct deposit to multiple accounts...wish I could have part of it go straight to savings.  But now that I actually have some self control, I'll just do it myself!

Are you sure? I think every company I've worked for has let me do this.

yolfer

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Re: Lifestyle inflation
« Reply #29 on: August 12, 2013, 01:53:32 PM »
The wife won some money on wheel of fortune a number of years back.  She stuck the money in the bank.


That's cool, she was on TV and whatnot? I always wondered how one gets on Jeopardy and those shows.

She was.  They have a "wheel mobile" touring van that does auditions for the show that stopped by our college campus one day. After a few rounds of tryouts she was selected.

Post the video or it didn't happen ;)

arebelspy

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Re: Lifestyle inflation
« Reply #30 on: August 12, 2013, 01:58:41 PM »
Sadly, I only have it on VHS.  If you want to digitize it, let me know.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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olivia

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Re: Lifestyle inflation
« Reply #31 on: August 12, 2013, 02:16:56 PM »
The only bummer is I can't divert my direct deposit to multiple accounts...wish I could have part of it go straight to savings.  But now that I actually have some self control, I'll just do it myself!

Are you sure? I think every company I've worked for has let me do this.

Yes, I'm sure, and it sucks!  My husband can divert his to multiple accounts so I think we'll just do it with his.  He gets paid every 2 weeks and I get paid monthly so in theory it would be easier to do it with mine because the pay date doesn't change and it will psychologically not feel like extra $ if I get it diverted to savings, but we can always readjust.

Sunflower

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Re: Lifestyle inflation
« Reply #32 on: August 12, 2013, 06:38:18 PM »
I'm getting a big raise soon and am very much fighting against the lifestyle inflation impulses! It's hard! I've been planning to start a journal here soon to help keep me accountable.

Right now I'm planning on spending most of my bonus on things for my new apartment since it will be the first time I'm living alone and my current roommates won't let me take all their furniture/kitchen things with me. My rent/utilities/etc. will be going up because I'll be paying for them myself instead of splitting among roommates but the increase in salary is more than enough to offset that in terms of spending/saving rates.

I'm going to try as hard as I can to keep variable expenses at the same levels they have been but it's going to be a struggle. I definitely have a strong pull towards the 'finer things in life' and I've felt a bit deprived. I think the reality will be an increase in spending...hopefully not more than a few percent.

sol

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Re: Lifestyle inflation
« Reply #33 on: August 12, 2013, 06:59:32 PM »
I feel like we have a pretty inelastic consumption curve.  If we made more, we'd save more; if we made less, we'd save less. 

Our decisions about what to buy aren't really based on our income.

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Re: Lifestyle inflation
« Reply #34 on: August 12, 2013, 07:07:07 PM »
I actually just got a 14% raise (which is way crazy huge for my employer).  I am thrilled because now I can save faster than I'd planned. Our budgeted spending is remaining the same; however, I may do a couple things around the house I've been putting off (new plumbing, new electrical) so it might tick up a little bit for "special" causes.

Fletch

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Re: Lifestyle inflation
« Reply #35 on: August 12, 2013, 08:27:33 PM »
I'm going through this now actually. About 1/4 of the raise will go to taxes, I upped my 401k contribution with about 1/3 of gross raise, and I'm not sure about the rest. I'm still waiting to see how the final direct deposit works out, but even if I spend the entirety of leftover raise it is 3-4% increase. My overall savings rate would be about the same, so i can live with that.


clutchy

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Re: Lifestyle inflation
« Reply #36 on: August 13, 2013, 10:57:27 AM »
I am mostly immune to inflation; my spouse is not.

any raise is generally a negotiation b/w deferring more into retirement accounts and increased lifestyle.


current issue; she wants a house keeper and she just got a $3000 raise.  So most of that she wants to purchase a cleaning person a couple times of a month.

pom

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Re: Lifestyle inflation
« Reply #37 on: August 13, 2013, 12:11:04 PM »
If I was already FI, I might answer differently.

Same here, most likely it would not be stuff, because stuff doesn't really do it for me. However there would likely be more weekend trips to Rome or Barcelona or Copenhagen ...

kolorado

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Re: Lifestyle inflation
« Reply #38 on: August 13, 2013, 12:37:08 PM »
Even though I voted "Immune" it might not be entirely accurate.
 We'd been a one income, low middle at that, household for 11 years. Every raise hubby got was banked or used to pay off his auto loans and reduce our already low mortgage. Our expenses plummeted in every category I focused on as I found more ways to save. But life threw us a curve ball and we moved to Colorado last year. We sold our old bungalow and banked the cash. Hubby's work paid for our move and also gave us 1/3 year's salary in bonuses for relocating. Overtime opportunities for hubby tripled. What all this meant was that we owed no-one anything and suddenly had enough liquid saved as well as income coming in to drastically upgrade our lifestyle. After much soul-searching, planning and number crunching we did decide on taking on much more than we'd had previously. With our family of 5, none was unreasonable(1500 sq ft home in the burbs, brand new 0% financed car to replace 2000 Caravan, and soon to purchase small pop-up or hybrid camper)but to anyone who knows us and our history it must seem like we've gone nuts. To me it was the difference of an income of $32K after taxes and savings of $30K(not counting retirement)and an income of $55K with savings of $60K to finally allow me enough space to breath easier and "inflate" our lifestyle. At our current level of income/savings/expenses, we could pay off all our debt in less than 10 years without affecting our lifestyle or retirement plans.
But as for eating out more, vacationing more, buying less things on sale, or any of the things I generally think of as being tied to lifestyle inflation, nope. We are completely immune to all that.

yolfer

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Re: Lifestyle inflation
« Reply #39 on: August 14, 2013, 03:32:47 PM »
Sadly, I only have it on VHS.  If you want to digitize it, let me know.

I bet you could get one of those "dual" VHS/DVD decks pretty cheap on CraigsList. They can usually do dubbing from VHS to DVD. Digitize all the VHS tapes you want to save, and then list it back on CL for the same price you bought it! My dad owns one if you want to bring it to Seattle with you when you visit.

mm31

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Re: Lifestyle inflation
« Reply #40 on: August 16, 2013, 09:06:55 PM »
no discernible increase for me. I'm satisfied with the stuff that I have and I'm focused on increasing my saving for FI.

Abe

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Re: Lifestyle inflation
« Reply #41 on: August 17, 2013, 12:51:01 AM »
I said 1-2% to be honest, but can't think of what to spend extra money on. My parents are big spenders and the idea of shopping makes me ill.  My wife doesn't like buying things either. She will be getting a significant increase in salary soon, but it will all go to savings and taxes!

RedMaple

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Re: Lifestyle inflation
« Reply #42 on: August 17, 2013, 09:56:31 AM »
I voted 0% because the first thing that came to my mind was... I'll be able to save up faster for my condos downpayment, perhaps I'll give a 50% downpayment, instead of the 20% I originally planned in that time span.

mm1970

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Re: Lifestyle inflation
« Reply #43 on: August 17, 2013, 11:54:59 AM »
Good question.  I am thinking about changing jobs, hopefully with about a 10% raise.  I don't expect to spend any more.

acanthurus

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Re: Lifestyle inflation
« Reply #44 on: August 17, 2013, 12:17:31 PM »
I have pre- and post-tax savings numbers (hard numbers, not percentages) that I make myself hit quarterly. Those numbers exist so I can hit a certain net worth at a certain age. That absolutely gets saved no matter what, and is about 50% of my gross salary. If I can, I try for more (last year I saved about 75% of my gross income).

Last year wasn't sustainable though, as I cut back so much it started to affect my health. I've already increased my spending starting last month with a job and residence change. At this point raises would definitely equate to some spending increases, but only because I kinda knee-jerked into this FIRE journey.

TL;DR - yes because my savings rate is and underdamped system and I overshot. 

Zamboni

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Re: Lifestyle inflation
« Reply #45 on: August 17, 2013, 05:43:26 PM »
I got nearly a 20% raise last month.  Used it to up my 401k withholding to the annual maximum and kick more into the children's 529.  They would like MacBook Pro computers, but that's not going to happen in the foreseeable future and there's nothing I want to buy, honestly.

Mini-Mer

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Re: Lifestyle inflation
« Reply #46 on: August 17, 2013, 08:41:02 PM »
I voted 1-2%.  I'm not immune to lifestyle creep (my income plateaued about six years ago, and I started feeling the need to monitor cash flow this year) .  On the other hand, I live very, very well now.  No roommates, high-speed internet, travel, exercise, good beer.

Figuring out how to spend in useful ways has gotten trickier, and increasingly my best investments are small tweaks to my daily routine.  For example: buying a $10 spare phone charger to leave at work, rather than trying to remember my phone's charge and the location of the one charger.  At this point, I'm mostly interested in maintaining my current lifestyle for less money. 

I did recently buy a home, and that has opened up new worlds of opportunities for spending money (attic insulation! rat traps! curtains! garden! flooring! bike!).  That's what triggered me to start keeping a closer eye on my cash flow.
 
If a 10% raise came my way, I would raise my 401K withholding, throw a percent or two at home improvements, and then try to forget it happened.

marty998

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Re: Lifestyle inflation
« Reply #47 on: August 18, 2013, 03:33:11 AM »
I got nearly a 20% raise last month.  Used it to up my 401k withholding to the annual maximum and kick more into the children's 529.  They would like MacBook Pro computers, but that's not going to happen in the foreseeable future and there's nothing I want to buy, honestly.

I got a mac. I still dunno how to use all the programs, (iPhoto, iTunes, iMovie, etc) and now I'm embarrassed to carry around a somewhat clunky Macbook Pro when the "cool kids" are flashing paper thin tablets.

Kicking myself for spending $1600 a couple of years ago and mostly all I do on it is update my networth spreadsheets, type on MMM forums, a couple of other shares and property investment forums and read random news sites. Could have bought a non-mac and do the same for 75% less.

I just realised I said "programs" above. I apologise to all the insanely feral Apple groupies out there. I meant to say "apps".