There is a lot of talk about “lifestyle inflation” which is basically spending the extra money one makes as one gets more advanced in a career, gets a side hustle, inheritance, stock market gains, credit (terrible idea) or whatever. What about the opposite of lifestyle inflation? We voluntarily went through “lifestyle deflation” once we realized that we were spending our way to unhappiness. It’s not as bad as it seems and totally worth the short-term pain to get back on track.
After graduating from residency, my wife (a Physician Assistant) and I did the doctor life things and went all in. Big house, new cars, monthly memberships etc. Our mantra was “If we can afford the monthly payment, let’s buy it.” We quickly realized this would lead to unhappiness as the school debt continued to accrue interest along with the mortgage, all the while saving $0 for retirement. Our possessions started to own us… no thank you.
We hit a full stop once things came to a head trying to sell a house with a faulty foundation and realized all the stuff would never fill the void of financial dependence. We culled the flock of monthly spending, rented, paid debt like crazy and read financial books and blogs voraciously. Here are the steps we took to Deflate our lifestyle.
1. Cull the flock of monthly spending
Just because you can afford the monthly payment doesn’t mean you can afford the purchase. It’s death by 1,000 monthly cuts and anything less will enslave you to current income. Want to live month to month? You better be sure you love your job, always will, and want to work until you’re 65-70. Emancipate yourself and cut the bills down.
2. Rent out of residency
Jumbo mortgage with no down payment fresh out of training with 250K in student loan debt: aka “Doctor Mortgage”? Sign me up!
Don’t do it. Rent for at least 1 year. Make sure you like the job, city, culture etc. Get to know the traffic, schools and places you will frequent. The jumbo doctor mortgage will always be there, and your rate will be lower with something for a down payment.
We were forced to sell after 9 months in a new house purchase because we moved states for a more stable better paying job. We got 2 cash offers on the house, then the foundation cracked over a period of 2 weeks during closing. No sale.
Fast forward 4 years, 1 lawyer, 1 lawsuit, 20K in legal fees, 60K in house repairs and 2 tenants later and we sold for a 50K loss because the oil economy the house resides in is way down. Just rent out of training or when changing job locations.
3. Pay down debt
Were big fans of no debt. The peace of mind is worth any interest rate arbitrage that may or may not exist. The goal is not end wealth but a balance of end wealth, wealth during the journey and happiness along the way. Having Zero debt is for sale. Buy it asap and free yourself.
4. Read about finance
I started with White Coat Investor reading list book of Four Pillars. (Bernie is my hero). It was downhill from there. I owe it to myself and family to read about finance. I also owe it to my patients. The more financially secure I have become (now financially independent) the better health care I am able to deliver. I simply don’t care very much about reimbursement. My decisions are totally patient driven.
“I wish I had more money” said no financially knowledgeable doctor on her deathbed… ever.
5. Read about happiness
This was the coup de grace that slayed the Lifestyle Inflation beast. I have read thousands of peer-reviewed journal articles on cancer and written dozens of abstracts, posters and articles myself. I just turned that skill and focus to the happiness literature for a few years. There is great data from very smart people (these people think very different from physicians) and it’s easily available from interlibrary loan.
Here are a few of the fruits of my labor on the topic if interested.
Once I realized the limits of income on happiness and ways to spend money to increase happiness, I was motivated, hopefully for life. This has become my favorite subject lately, even more interesting than oncology (for now).
Paradoxically, Lifestyle Deflation leads to Happiness Inflation
This is my conclusion of the past few years. These changes turned into permanent behavior change that became an addiction. We used to get pleasure from spending money, and some data suggests that spending creates happiness if you can spend more relative to peers. Big house make you happy? Only because it’s better get than everyone else. This is called relative consumption and can be read about (in great technical detail) in a paper aptly named Neighbors as Negatives.
There are negatives of Deflation. It better to never have inflated in the first place. It’s not easy to go from a $600,000 granite laden, triple crown molded McMansion with the Viking range and Twin Sub Zs where the grill is hot and the pool is luke – to a 1,600 sq foot rental. It definitely felt like going to Owen Wilson’s – Kevin to Ben Stiller’s – Greg Focker.
I had to drop the pending deal for that new 5 series BMW in favor of a 3-year-old Subaru. And I won’t lie and say that I enjoyed putting my $300 shoes in a rusted out Hobbit locker at the YMCA compared to the plush human sized lockers of my past-life private gym. But…. after a few frugal sobering months of repeated ego checking at the door of our new house, gym and car, I was free of the need for these things and emancipated from my need to keep up with the Jones’s. It helped that the debt was drilled down and the retirement cash started piling up.
Now, I get pleasure from knowing I can spend as much or more than my peers and not doing it. The less I spend, the less I want to spend. I call it the Self-Restraint Positive Feedback Loop.
I drive a used Subaru and proudly park next to my partner’s $80,000 Porsche. It’s my alternative to the hedonic treadmill and has kept my family off the treadmill of Lifestyle Inflation and its myriad consequences. Here is a classic post by Physician on Fire about the practical implications of Lifestyle Inflation or lack thereof the Doctors A, B, C and D.
The main reason for this post is that the time has come to loosen the purse strings a bit. We’re financially independent. We don’t need to supersave quite as much and I am going to make some changes soon to work less and take a big pay cut so I can spend more time with my young family and pursue non-clinical interests, such as this blog.
This post is my rationale for the past few years of restraint and also a lifeline for those inevitable times of weakness to come with lower future pay to remind me to stay strong and live a little.
What do you think? Is deflation worth the ego hit for longer-term inflation?