Physicians: Beware lifestyle inflation


At some point in our lives, most of us have learned to live on very little.  For example, if you’ve ever been a college student, you’ve mastered the art of living in the same house with a dozen other people, finding free meals, and using public transportation.

Back in the early 2000’s, when I was a college student, I estimate that I spent about $15,000 per year on living expenses (aside from tuition).  Due to the effects of economic inflation, this would be around $22,000 in today’s dollars.

Over the years, I have gradually inflated my lifestyle, and my wife and I currently spend between $50,000 and $60,000 per year, close to the average household spending in the United States.  The natural inertia is to spend more and more over time, but if at all possible, I recommend that you resist lifestyle inflation.  There are three main reasons for this:

1. The less you spend, the more you can save

If you keep your living expenses down as low as possible, this means you can save a larger proportion of your income, which means that you will reach financial independence sooner.  In case you missed it, here’s how long it will take you to reach financial independence based upon your take-home-pay savings rate.  Do you want to reach financial independence in 20 years? Or 50 years?  The choice is yours.

2. The less you spend, the less you need to save

If you can reliably keep your living expenses down, then you won’t need to save as much to reach financial independence.  Using the 3% rule, if you can live on $30,000 per year, then you only need to save $1 million to reach financial independence.  However, if you need $150,000 per year to live, then you need to save $5 million.  That’s a huge difference.  If you can be happy living on less and you value your freedom, be careful with lifestyle inflation.

3. The less you spend at baseline, the more you will appreciate luxury

If you are used to living a modest lifestyle, you will appreciate those nice dinners and beach vacations all the more.  Even the best toro in the world gets old if you eat it every day.

Beware lifestyle inflation

Lifestyle inflation is a toxic force.  Not only does it reduce the amount that you can save, but it also increases the amount that you need to save to reach financial independence.  If you value your freedom, keep your living expenses in a modest range and resist the urge to inflate those expenses over time.

“Live Free MD” is a sports medicine physician who blogs at his self-titled site, Live Free MD.

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