it probably starts gaining strength when you experience a “significant” event in your life - like graduating out of school and getting on a job, making a large ticket item purchase (house, car, etc.), marriage (may be even engagement), getting a raise, etc.
To make this a bit clearer, in the following, I will resort to some crude graphs along with my narration. I will stress here that these are my personal opinions; you may probably have a different story to tell - in which case we would be pleased to hear about it.
First of all, I don’t think lifestyle inflation is something really bad. I consider it to be an essential element of life - as long as it is within reasonable limits. For example, you don’t need to drive a junker all your life - sometime down the line, whenever it’s feasible (affordable and within your means), it’s OK to upgrade to a reasonably better car and save yourself some headache. It’s OK to wear better clothes, it’s OK to wish for a bigger apartment, a better computer, and whatever else that you want. But all this is OK as long as you are *reasonable* - mind you, the word is highly subjective and individual perceptions will most definitely differ from each other. What I mean by reasonable is this:
It’s a graph of rate of earning/spending ($ per day or $ per month, etc.) vs. time (months, or years, etc.). With reference to the graph above, as long as your rate of spending is less than your rate of earning, your lifestyle inflation is totally normal.
Problems arise when your lifestyle inflation exceeds your income inflation - you start spending at a rate more than the rate at which you are earning. This shown below:
Like I mentioned in the opening paragraph, my observation is that the maximum danger from out-of-control inflation arises when you go through some significant events in life and decide to reward yourself for your accomplishments (or celebrate a milestone, etc.). To understand this, first let us assume some “normal lifestyle inflation” - something that’s within reasonable limits:
Now, let’s show some significant events (”moments of excitement”) on the time line, and see what happens to your rate of spending:
Most people tend to spend at an increased rate during events like marriage, buying a house, a car, etc. This is perfectly understandable. However, what happens is, long after the event is over, people don’t tend to come back to their “normal” state. Why? Honestly, I don’t really know; probably they get used to the higher rate of spending and there is some sort of a financial inertia that doesn’t allow them to come back to their normal rate of spending. It is around such events that you should be really careful - this is the time lifestyle inflation will first start nibbling at your pockets.
What you ideally want is this:
You can spend at a higher rate during the significant events, but after that you need to put in considerable efforts to bring your lifestyle back to normal spending levels. I understand it’s always easier said than done - but that is what needs to be done - and it would take a lot of self-control and determination to achieve that.
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