Lifestyle Inflation: Why You Still Can't Build Wealth

There’s no denying that your income is your best weapon when trying to build wealth and achieve financial freedom.

You can only save or invest so much money, but the part of your personal finances which is technically unlimited, is your earnings potential.

But… it doesn’t end there, and there’s a reason as to why so many high earners can’t build true wealth.

The reason?

It’s called lifestyle inflation, and I’m going to explain why you have to avoid it at all costs.

My Friend Kim

I once had a friend. His name wasn’t Kim, but I’ll refer to him as Kim because it’s funnier that way.

When we left college at 18, we both went to work in London.

His starting salary was over £30k. Mine was £25k.

• Kim financed a brand new BMW straight away, bought tons of designer clothes (I literally saw him wearing Gucci flip flops one time), and spent the rest of his money buying tables and big champagne bottles at clubs.

• I kept my first car, bought cheap yet stylish clothes, spent enough out to have a good time, but also not too much so I can’t invest for my future.

Fast forward 5 years…

• Kim is still working his job in London, has a drinking problem, is in terrible shape, and appears to be what I can only describe as… unhappy. But he’s got a nice car though, so that’s fine, right?

• I quit my London job a while ago to build a business around a lifestyle that I want. I look after myself, am in the best shape I’ve ever been in, and am the happiest I’ve ever been.

What’s the biggest difference between me and Kim?

The answer is simple. One of us had lifestyle inflation. The other didn’t.

Can you figure out which is which?

The Problem With Lifestyle Inflation

Lifestyle inflation is a self explanatory term.

It’s when you inflate your lifestyle to match your income, like when you switch jobs, or get a promotion/pay rise etc.

However much you earn each month, this is also how much you spend each month.

You have nothing left each month to build for your future, like investing or starting a business.

Now, this might seem fine if you’re 100% fulfilled, love your job and are truly happy in life.

You’re not getting into debt, and you’re enjoying the fruits of your labour.

But, the thing is:

• Most people aren’t fulfilled.

• Most people don’t like their jobs.

• Most people aren’t truly happy in life.

And so there’s this never ending cycle that you can’t get out of… the rat race.

What You Need to Prioritise

There’s one term that you need to familiarise yourself with in order to start building wealth.

Disposable income.

What is disposable income?

The difference between your income and your expenses.

Disposable Income = Income — Expenses.

Want wealth and freedom? Worship this formula.

Think about it for a second… out of these two scenario’s, who is actually richer?

• Person A — Earning $8,000 a month. Spending $8,000 a month.

• Person B — Earning $5,000 a month. Spending $4,250 a month. Investing $750 a month.

It isn’t who has the most income. It’s who has the most disposable income.

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