The Key to Achieving Financial Independence

The key to achieving financial independence is avoiding lifestyle inflation.

What is lifestyle inflation you ask?

Lifestyle inflation is when you progressively live a more expensive lifestyle as your income grows throughout life. The way people are often able to justify these types of increases is often because they “deserve it.” Like, I’ve worked hard this past year and got promoted so I deserve a new snowmobile (and all the related maintenance/registration/insurance costs that go with it). Maybe so, but wouldn’t you rather continue with your same frugal lifestyle instead of setting yourself up with a lifestyle that’s going to limit your ability to save for your retirement?

Obviously all of us are going to be susceptible to some lifestyle inflation over the course of our lives and there’s nothing wrong with that, as long as it doesn’t get out of control. It’s one thing to move out of your parent’s basement to a small one bedroom apartment, and then on to a larger place once you get married and start thinking about starting a family. It’s a whole other case when you get a raise or bonus at work and immediately go out and spend the money on an ATV or as the down payment on a new car you “deserve.” This type of lifestyle inflation will hinder you down the road and prevent you from building the kind of wealth needed to retire comfortably (or early for those people like me :)) and often lead to a heavy consumerism lifestyle which in turn often leads to debt.

So there you have it, the key to achieving financial independence. Obviously you need to do more to achieve financial independence but this is the crucial first step that the rest of your financial journey hinges on. Just keep lifestyle inflation in check and it will enable you to save more than you ever thought possible, allowing you to live a more financially secure retirement, or push hard towards an early retirement/financial independence goal.