April 2022 – Lifestyle creep in the face of inflation

The news is full of horror stories about the ‘cost of living crisis’ (1, 2, 3). People choosing between heating and eating. It’s getting bad for those at the financial margin, and the theory goes once that punished margin hits a tipping point, to a recession we shall head. The prospect of rocketing inflation isn’t a surprise if you’ve had your ear to the ground, it was kind of evident at least a year ago, when Monevator was already talking about it (4).

Fearing such things I locked in a 1.65% mortgage for five years twelve months ago. Should see us through the worst, or at least until we’re ready to move and capitalise on a distressed market. Elsewhere inflation is pushing up our monthly budgets. It has made me realise how much each month was spent on discretionary items, eating out, etc. I thought we were pretty good, but now the amount we’re spending on essentials has gone up, I’m suddenly seeing where we need to, and could have, reined in spending.

I think this was a strong case of insidious lifestyle creep. In the past couple of years we’ve added a baby with associated costs to the family, but we’ve also as a couple had many conversations about how we’re living. For a long time we’ve continued our fairly student lifestyles, not unlike Monevator in his 30s (5). Yes we had a house, but we bought a wreck when we were young, bought tools and did it up, turning a bit of a profit. We lived in cheap parts of the UK, where our mortgage was comparable to rent. Furniture was hand-me-downs, flea market or charity shop bought (BHF FTW). Clothes were bought on sale or from charity shops, from good brands in fairly timeless styles. We avoided most standard lifestyle inflation traps, but at same time we had a habit of buying things that “will do”. So in the last year we started to buy some things which were more than “that’ll do”, to be things we truly liked no matter the cost. Not major stuff, a few bits of furniture, some clothes here, some shoes there.

It’s culminated in a major purchase this month. My daily driver up until now has been a tatty but reliable 20-year old estate. It brought the baby home, it’s helped me move house about eight times, as I’ve shuttled around the country during training. I bought it eight years ago for £2,000. It’s cost me a further £5,700 in repairs over the time I’ve owned it. I’ll do a full run-down of costs in a separate post. In the last six months it’s started generating bills every month of around £150, as various things have gone wrong. So I made a decision to sell it.

It’s been replaced by something very new, very safe and hopefully reliable. I’ve been looking for around six months, and I’m cursing not replacing it sooner. What was £7,000 two years ago is now £10,000. The sort of car we wanted to replace my daily, a family car which can ferry us all in comfort and safety, has dramatically shot up in price.

And this is where the lifestyle inflation comes in (6). We’ve decided to use some of my (overly cautious) emergency fund alongside savings to get a more modern car than we planned from a luxury marque. It’s a lot of car, for a lot of money, that we will hopefully keep for a long time. It’s more than we need. It’s got luxuries, and feeds our sense of entitlement (we deserve it, we work hard), and our sense of status (we’re important people with important jobs) (7, 8). The sensible choice would be another ten year old work-horse, not a four year old show-pony.

I then ran through a list of places where I might have already made subtle inflationary changes (some taken from here and here) (9, 10):

  • New furniture (as described above; new coffee tables, sideboards, bed and mattress, wardrobes…)
  • Gym memberships (gone from the council to a fancy gym – this did help with my motivation, but back to the council one I go)
  • Eating out or takeaway in (went up for a long time, we’re now cutting down)
  • Holidays (we had a really nice one recently to a resort, but maybe we can go back to cheap AirBnBs with friends)
  • Brand name foods – we don’t do this
  • Clothing – yep, as above
  • Organic foods – we do a lot of this.

We’ve made a lot of changes from needs to wants. And I guess that’s lifestyle inflation. So maybe we’ll do a bit of substitution for a while, and pause our discretionary spend (11). More money to chuck in the markets that way…

April Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved just 5% of my salary in April, as many got moved about and prepared for an impending car purchase. My net worth fell by half a percent thanks to the markets trending down.

Budgets:

As compared to my four year back-calculated mean monthly spend:

  • Groceries: March £225, April £220, budget £220
  • Eating out & Takeaway: March £79.62, April £50, budget £50
  • Transport: March £432, April £158, budget £330
  • Holiday: Mar £125, Apr £0, budget £40
  • Personal: Mar £85, Apr £60, budget £120
  • Health: Mar £47.95, Apr £92, budget £150
  • Misc: Mar £96.56, Apr £92, budget £215
  • Work fees: Mar £189, Apr £344, budget £265 (splitting the difference of this lumpy spend)

In the garden:

Grass mown and re-seeded, potatoes sown, lettuces, beans, celery and tomatoes potting on. A bit more time means a bit more growth.

Cheers,

The Shrink

References:

  1. https://www.instituteforgovernment.org.uk/explainers/cost-living-crisis
  2. https://www.theguardian.com/business/cost-of-living-crisis
  3. https://www.ft.com/content/e6bd22e1-088f-492d-802a-1a7aecdc7fe7
  4. https://monevator.com/beating-inflation/
  5. https://monevator.com/live-like-a-graduate-student-and-save/
  6. https://www.ramseysolutions.com/budgeting/lifestyle-inflation
  7. https://medium.com/swlh/lifestyle-inflation-more-money-more-problems-93a2090d7f41
  8. https://www.investopedia.com/terms/l/lifestyle-inflation.asp
  9. https://www.forbes.com/sites/kristinmckenna/2020/06/22/the-true-cost-of-lifestyle-inflation/?sh=35c978b52423
  10. https://www.frugalconfessions.com/spend-less/examples-of-lifestyle-inflation/
  11. https://monevator.com/rising-cost-of-living/

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