Lifestyle inflation is a real financial threat. Given their resources at hand, doctors may fall victim to it if they're not careful with their money.

Most doctors spend the formative years of their careers working around the clock and making much less money than they know will someday. So, when they suddenly begin earning real salaries, it's easy to begin buying all of the things they feel they’ve missed out. This is where lifestyle inflation can move in and take over.

The repeated expenses of new cars, homes, or vacations can take a toll on your finances, preventing you from achieving the savings, investment, or retirement goals you hoped to reach. Fortunately, there are ways you can recognize and avoid lifestyle inflation so that you can stick to your goals and live within your means.

What is lifestyle inflation?

Lifestyle inflation, also known as lifestyle creep, occurs when your spending habits extend beyond what your income can support long-term. It usually starts as a gradual process, moving along at a steady, creeping pace. But habits compound, and before you it, one day it may have a tight-fisted hold on your finances — and your entire life.

Whenever you receive a raise or find a better-paying job, the temptation to take that extra money and splurge can be overwhelming. After all, you earned it, and you and your family deserve it.

But that’s not always how it works. Maybe you get that raise and decide to start eating out at nice restaurants more often and booking expensive trips because you can afford it now. Or maybe you buy higher quality makeup or specially brewed coffees. Eventually, all of those little expenses begin piling up, and the next thing you know, your new income isn’t able to keep up.

Now, there’s nothing wrong with eating out or buying nice things. But when you begin letting those upgrades infiltrate your entire life and you don't have a clear-cut plan for your finances, trouble is sure to follow.

Related: 5 Unique Financial Challenges Doctors Face

How to avoid lifestyle inflation

While it may be hard to identify the signs of lifestyle creep in your own finances on a day-to-day basis, there are many things to can do to avoid it altogether. From gaining a deep understanding of your money to just saying no to "keeping up with the Joneses", here's how to avoid lifestyle creep.

Understand your finances

One of the best ways you can avoid lifestyle creep now is by taking the time to understand your finances. How much do you make per month now? How much do you spend on essentials like electricity, mortgages, rent, or groceries? What percent of your finances go towards savings and retirement funds?

When you understand where your money goes and how much it’s needed in these different categories, it’s a lot easier to avoid spending money for its own sake.

Distinguish between “want” and “need”

While you’re studying your finances and determining which monthly expenditures are essential, make sure to draw a line in the sand between your “wants” and “needs.”

It can be easy to say that you need a new car, and perhaps you do, so that pay increase will be vitally helpful in helping you with that purchase. But if you “need” that new car because your own is lacking in features that you wish it had, take a minute to reflect on the purchase. If your current vehicle works for you and is in good condition, that's probably more of a “want”?

The same is true for grocery budgets, homes, and vacations. Don’t spend more than you need to satisfy a want that will likely change tomorrow.

Stick to a budget

As you finish determining the differences between “want” and “need” in your finances, and as you come to a stronger understanding of how they work for you, take the time to compile that knowledge and build a budget for yourself.

By this point, the hard part is virtually over for you. You know where your money is going, you know to be wary of “want” purchases. So take that information and create a budget that you can monitor throughout the month to give yourself clear parameters on what you can spend and what you need to leave alone.

Most importantly, when you’re making a budget be honest with yourself. Don’t set goals you know you won’t be able to meet, but also avoid giving yourself too much leeway with expenses you know you have a tendency of going overboard with. Give yourself a budget you can stick to, and your financial health will thank you.

Learn More: Which of These 6 Budget Methods Is Best for You?

Beware of social media

Social media can be a beautiful thing. It allows you to keep in contact with friends or family you don’t see often, keep up with your favorite celebrities, and get inspiration for that new paella dish you’ve been dying to make. But social media also comes with many aspects that can damage your mental health and finances. Typically, this comes in the form of jealous or inferior feelings that spring up when you want what other people have.

Celebrities, family, and friends alike all want to share the best versions of themselves on social media, so they post the exotic vacations, the new purchases, and the regular brunch dates with coworkers. But just because Mary can afford a trip to Australia and Jack is purchasing a new car doesn’t mean that you have the funds to keep up with both — or either — of them.

Learn More: Social Media for Doctors in 2021

Treat yourself (occasionally)

If you keep a close eye on your finances and carefully watch your spending habits to prevent lifestyle inflation, there’s nothing wrong with splurging — on a tropical getaway, a wardrobe upgrade, or that dream set of Callaway golf clubs. Just make sure that you save up to cover the expense before you make it. That way you won’t have to worry about your budget or your bank account because you’ve carefully prepared to cover its cost in advance.

Jack Wolstenholm - Head of Content Marketing

Jack is the Head of Content Marketing at LeverageRx, the personal finance company that simplifies how healthcare professionals shop for financial products and services. A Creighton University graduate and former advertising creative, he has written extensively about topics in personal finance, work-life, employee benefits, and technology. His work has been featured in MSN, Benzinga, TMCNet, StartupNation, Council for Disability Awareness, and more.

Physician FinancePublished June 18, 2021