You’re cooking dinner or walking in the countryside, when you get a whiff of some forgotten scent. Suddenly you’re transported back to another time, becoming for a moment the person you once were in the body of the person you’ve become.
Such flashbacks are the closest things we have to time machines.
The French writer Proust famously conjured up a lost past by biting into a madeleine cake. Scientists say the effect is due to the proximity of our oldest memories with the parts of our brain that process smells and sensations. They call it involuntary memory [1].
I had my own Proustian moment recently. It reminded me of how our perception of the value of money changes over time – or with a growing income and bank balance.
And it reminded me how I’ve tried to control my perception rather than have it control me.
In this post I’ll try to explain why I believe you must try to master what I’ll call lifestyle inflation, rather than being its slave, if you are ever to be financially free.
A pint-sized introduction to lifestyle inflation
To put lifestyle inflation into context, I’d like to share with you my moment of Proustian recollection.
It’s not a very glossy story, but that’s partly the point. Involuntary memory cuts away our intellectual pretensions and makes us remember us as we really were.
My recent episode came as I was cleaning up a couple of empty pint glasses from my bedside table, left there by my girlfriend. To be clear, she was drinking water in bed not beer! I don’t know whether there’s physiological differences between men and women that demands all this water consumption, but in my experience they can’t sleep without a glass of the stuff to hand…
Anyway, perhaps it was the clink of the glasses, or maybe the way the light struck them, but for a brief yet strangely long moment I was transported back to a time when I first saw pint glasses in people’s homes – or more specifically, student halls of residence.
I came from a pretty teetotal family, and didn’t even drink until I went to university. When I encountered pint glasses sitting about in my friends’ kitchens – often with other signs of what seemed unbelievable decadence to my young brain, such as stubbed out cigarettes and half empty bottles of vodka – I might as well have been living in a Hunter S. Thompson novel.
I was amazed, and I wondered how they’d got the pint glasses home from the pub.
Again, I’d only just started going to a pub. I don’t remember how much a pint of beer cost then – or even pints of the Guinness that I took to drinking – but I do know a pint was a lot for a student on a budget.
In fact, I never developed the alcoholic tendency that students are famous for, mainly because it cost so much.
I couldn’t really understand how people could spend half or more of what they were paying on rent on drinking every other night, however much fun it was to banter in the pub or to wake up in the morning with a traffic cone in your bed.
Trick or treat
It’s sobering to think there was a time in my life when a pint of beer could be such a dramatic buying decision. But then the episode reminded me of another odd route to happiness.
This one is probably more embarrassing than my being a too-sensible student.
My family background is not wealthy. Partly I am a child of a different era, before kids expected to go to college in the latest fashions and touting a £200 phone. But beyond that my family life was comfortable but far from rich.
So for my early teen birthdays, it used to be a family treat to go into town to pick up a lavish selection of fast food – basically junk food – and to gorge on the fries and chicken back home like medieval kings.
It sounds ridiculous, but I have three siblings and compared to making a meal for all of us from basic ingredients, fast food was a luxury, particularly back in those days. I’d intellectually like to pretend it wasn’t true, and that I hankered for truffles and black cod in miso sauce from age 10, but that would be a lie.
Indeed, my involuntary memory episode reminded me that when I first went to university, I used my new student grant to eat Kentucky Fried Chicken every day.
I was living in one of the nicest parts of London, and I would walk past amazing restaurants and delis to get to the local KFC store to buy fried chicken. I did this for the whole of the first week, every night.
I guess it was partly an emotional crutch to help me deal with starting my life as a (semi!) adult. But also, it really was a treat.
Yet you can buy a KFC meal for these days for not a lot of money – about £2.99.
I don’t know the exact price, because I eat it maybe once a year now, and when I do I don’t even notice what it costs. Which takes me – you’ll be relieved to hear – to the point.
What will you put on YOUR menu?
Two nights ago I ate dinner with some friends in a new and splendid example of what have become known as ‘gastropubs’.
At their best, gastropubs are pubs serving excellent food. At their worst, they are pubs that shouldn’t be allowed to serve pork scratchings, and yet charge you £15 for a fancy version of sausage and mash.
This one was an excellent example of the genre, and I urge you to check it out if you’re in London. (It’s called The Fellow [2] and it’s in the fast gentrifying area of Kings Cross).
Anyway, the meal came to about £40 per person, including three courses and plenty of wine.
Now, I am at the point where I can’t pay £40 for dinner out without flinching – but not without doing the maths.
What I mean by this is I can’t help immediately working out that eating at The Fellow once a week for a year would cost me £2,000, and also that I can afford to do that.
On the other hand, eating at The Fellow every night would be financially ruinous for me and my aspirations.
In contrast, I can now drink a couple of pints every night without bother, or if I wanted to I could go to KFC every night without my bank manager blinking an eye (though my girlfriend might have something to say about it!)
My personal ‘treat’ level for eating out is therefore now set at about £40 – twelve times the cost of a KFC meal. This is lifestyle inflation in the raw. And it all adds up.
Will I one day become so fabulously wealthy that I look back at the £40 sum with the same wonder as being amazed that eating junk food was once a special thing?
Possibly. It’s definitely true that people who bemoan rich people for ‘wasting’ their money on expensive bottles of wine or fancy coats are missing the critical point – that it’s all relative.
If you’re rich and can afford it, why not? If you’re conscientious, you’ll gravitate to your natural ‘treat’ level as surely as a student contemplating a night in a bar.
However I believe we can manage this drift towards devaluing experiences and money once we become aware of it. And that’s what I’ve tried do.
Up is not the only way for lifestyle inflation
It’s worth getting control of lifestyle inflation if you want to retire early [3], or to otherwise achieve financial freedom.
If you plan on living on two-thirds your income in retirement, there’s no point developing a taste for restaurants and holidays at the upper limit of your budget just before you quit work.
Rather, if you want to retire early, there’s every reason to cut your cloth right down to size. You’ll save money, but just as importantly you’ll curb your personal lifestyle inflation, so the money you end up with will go further.
The interesting thing about this is you don’t miss what you haven’t got.
When I was a student and I first when to London’s Chinatown, the idea of eating all that gaudy and (then) exotic Chinese food seemed incredibly glamorous.
Many years later I went to Nobu on Park Lane and had some of the best meals of my life, surrounded by what the media call ‘the beautiful people’.
Again, it felt incredibly glamorous – and it made Chinese meals seem at best a bit of knockabout fun. (Which they are: I still eat regularly in Chinatown).
In turn, I’m sure truly wealthy people are disdainful of the likes of Nobu and can’t really enjoy a meal unless it’s served to them on an empty beach they’ve arrived at by yacht in the Med or the Bahamas.
It’s all about what you set as normal. I have decided not to get too used to Nobu-style meals, and to limit my trips to Michelin starred restaurants for birthdays and other special occasions.
It saves my money now. And it stops the escalation in what we might call ‘hedonistic inflation’. It makes it more likely that I can replace my salary with investment income [4] without feeling like I’ve joined the ranks of the paupers.
You can’t earn your way off the treadmill
Some people on the Internet will tell you this is terribly defeatist.
These writers (or peddlers of some money-making scheme) say you need to set your ambitions higher to achieve the income needed to pay for the hedonistic life you desire.
I don’t disagree. Well, not exactly.
If since the age of 10 you’ve dreamed of owning a Ferrari and you know nothing would make you happier, find the money to get one.
If you can’t sleep for dreaming of owning a 50-acre organic farm in Somerset complete with honey-coloured house and apple orchard, you need to find the couple of million required to buy one.
I’ve nothing against aiming high and going for it. But don’t drift into spending twice as much on things that used to make you just as happy before.
Earning more and automatically spending more will not protect you from lifestyle inflation. However much money you have, if you don’t set limits you will never be content and will always want more.
Why do you think Richard Branson wants to go into space with Virgin Galactic? It’s a great business hook, it will get him lots of publicity, and he’s a born big thinker – but I would bet you dinner at The Fellow that it’s also because simply circumnavigating the globe in a balloon or hanging about on speedboats with nymphets no longer does it for him.
I vaguely know through work a fabulously wealthy American who told me much the same thing. He learned to fly jets for the buzz, but eventually that got boring, so he charted one of those planes used to train astronauts to cope with zero gravity. He is basically eating vitamins and spending a fortune on health care to try and live long enough to escape the Earth.
Such restlessness is what gave us fire, the wheel and the iPhone [5] – and so we all benefit. But on a personal level, it’s by definition not a recipe for contentment.
Plenty of very rich people go broke living beyond their means, too. Many more live forever unsatisfied.
And of course many others do realise they’re in a great position to cut their cloth sensibly and to use superior cloth, and so live as happily or otherwise as the rest of us.
The bottom line is however rich you are, you have to take a stand on lifestyle inflation. Earning more won’t do it.
Shining a light on debt
This may all sound obvious and simplistic, but in my experience people don’t get it.
I know people from those student days who graduated to become high-flying bankers. By their late 20s they couldn’t enjoy a night out unless their bill came to well over three figures. At least a couple were up to their ears in debt from bubbly-fueled binges in the City when I lost track of them, despite earning 3-4 my salary at the time.
The few I’ve stayed in touch with never really went down that route and seem as happy or unhappy as anyone else.
Debt is a great example of how what you set as ‘normal’ becomes embedded and hard to escape from.
I’m a fan of the Motley Fool bulletin boards, and its ‘Dealing with Debt’ forums. Time and time again new posters arrive who seem completely oblivious to the fact that buying new clothes every week, running a too-expensive car or eating out every night is not ‘normal’ unless you make it so – or that it’s not sustainable.
Credit cards in the hands of these people are as personally ruinous as guns or drugs. They run up debts of tens of thousands of pounds before the lucky ones have what old hands call a ‘lightbulb moment’.
It is humbling to see them finally getting it, and cutting everything to the bone, and slowly climbing out of the hole they dug for themselves. But if you don’t want to end up in hole, stop digging.
Having your cake and eating it
I propose we all learn to turn our lightbulbs on, long before we’re forced too.
There’s always the risk of becoming too mean with money [6], and it’s worth guarding against it. You only live once.
But the fact is scaling back your expectations rarely mean going without. What has never become normal is hard to really miss.
If we want to control money, and to become financial free, we need to control the things that others let slide as inevitable. Otherwise we can only end up in the same place as everyone else.
Hey: If you do miss living beyond your means, you can always develop a taste for madeleines…
(Image by: Savannah Grandfather [7])