Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.
This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.
When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.
This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.
In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.
Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.
What are some better things we could be doing with the extra income? Here’s where our focus is:
1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.
2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.
I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.
3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.
Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.
What are your tips for avoiding lifestyle inflation?
Photos by capetownstore.com and fastcompany.com
