Comments on: Lifestyle Inflation – Can It Be Avoided?

By: Adam

Adam — Sat, 06 Feb 2010 00:10:30 +0000

Leveraging to buy assets *can* make you wealthier down the road given the asset meets some basic conditions. Of course, all dependent on the amount of leverage.

1) The asset is, or can become, an income producing asset. Otherwise is just an asset sitting with capital appreciation being the only source of wealth generation. Cash flow of some sort can also help hedge against any depreciation that may occur.

2) The cost of borrowing + inflation does not exceed the capital appreciation (+possible cash flow). Otherwise, you’re technically losing money.

Many people tried using high leverage with homes in hopes that the capital appreciation would beat out interest rates and inflation. Well we see how that’s working out for some…

Here in Vancouver we are still hit with the barrage of media spin stating that we pay a premium for homes, above rents, due to a beautiful environment and the *pride of ownership*.

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Fri, 05 Feb 2010 03:46:18 +0000

[...] Four Pillars grappled with the problem of lifestyle inflation. [...]

By: Monthly 2010 Goal Progress Update - Amateur Asset Allocator

Monthly 2010 Goal Progress Update - Amateur Asset Allocator — Mon, 01 Feb 2010 03:36:32 +0000

[...] Lifestyle Inflation:� Can It Be Avoided? By Mike at Four Pillars.� Personally, I find the easiest way to avoid lifestyle inflation is to stay inebriated at all times so I can’t find my credit card.� I hilee recmmed it. [...]

By: Mama Zen

Mama Zen — Sat, 23 Jan 2010 18:23:51 +0000

@MoneyEnergy
”you get to a point where you�ve over-sacrificed for so long out of need that psychologically it�s healthier to just treat yourself with a dinner out or some extra books, etc.”
I agree, but this has to be done carefully… there is so much publicities telling us that ”we’re worth it”…

By: Melanie Reformed Spender

Melanie Reformed Spender — Fri, 22 Jan 2010 20:30:21 +0000

FS- A 60k increase would be huge!

2009 was an excellent year for my husband and I. Besides us getting married, he started a job at twice his old salary, and I got a huge raise for finishing my master’s. Most of it is going to extra student loan payments (we could barely afford the minimum before), but we did buy a house and a car, so I guess we did succumb to lifestyle inflation.

By: Mike

Mike — Fri, 22 Jan 2010 13:56:50 +0000

FS – $100k increase?

I’ll cross that bridge when I get to it.

By: MoneyEnergy

MoneyEnergy — Fri, 22 Jan 2010 04:13:20 +0000

It’s a real problem – I’ve thought about it before but frankly in grad school I’m still not at the point where I have to worry about it – I’m still deep in the debt-payment stage, not to mention income-raising stage. But I still think about it whenever I get in a bit of “extra” money – I know what I need to do mathematically but you get to a point where you’ve over-sacrificed for so long out of need that psychologically it’s healthier to just treat yourself with a dinner out or some extra books, etc.

By: Trevor

Trevor — Thu, 21 Jan 2010 23:47:56 +0000

On a side note, lets say you are 25 right now and want to become financially free at 40. Financially free being that you would spend money on “wants” while still having plenty of cashflow to cover “needs”. If a person wanted to buy a TV for $1000 today and still has a mortgage at 4% right now then you would have to ask yourself whether you would be willing to pay $1800 ($1000 compounded for 15 years at 4%) for that item when you are financially free.

By: Trevor

Trevor — Thu, 21 Jan 2010 23:37:59 +0000

I think that if you buy something that is a “want”, not a “need”, and still have principal residence debt that you could be putting money towards then you are technically leveraging to buy that item.

By: Four Pillars

Four Pillars — Wed, 20 Jan 2010 21:33:12 +0000

Congrats Chris.

I guess it depends on your goals. Once you have all the debts paid off, retirement accounts maxed out then goals like early retirement might motivate you.
Or just spend more…