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Early Retirement

The Luxury Trap: When Niceties Become Necessities

The Luxury Trap
People are funny creatures. We quickly become accustomed to new luxuries and then we can’t seem to live without that thing we’ve lived our entire lives without.

Cell phones are a good example. Just a few short years ago cell phones were expensive nice-to-haves. Today they are must have items that people have become addicted to and can’t seem to function without.

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The Luxury Trap

In the book Sapiens, author Yuval Noah Harari explains this phenomenon well and shows that people have been falling into The Luxury Trap since our hunter-gatherer days:

“…The pursuit of an easier life resulted in much hardship. It happens to us today. How many young college graduates have taken demanding jobs in high-powered firms, vowing that they will work hard to earn money that will enable them to retire and pursue their real interests when they are thirty-five? But by the time they reach that age, they have large mortgages, children to school, houses in the suburbs that necessitate at least two cars per family, and a sense that life is not worth living without really good wine and expensive holidays abroad. What are they supposed to do? Go back to digging up roots? No, they double their efforts and keep slaving away.

One of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligations. Once people get used to a certain luxury, they take it for granted. Then they begin to count on it. Finally they reach a point where they can’t live without it.”

This is The Luxury Trap and it’s a lot like lifestyle inflation.  Both can wreak havoc on your finances, your pursuit of FIRE and your personal freedom.

Personal Finances and Personal Freedom

Those caught in this trap find themselves upgrading their lifestyle with each pay raise. Earn more money, spend more money is the cycle. Sure they get to wear the latest fashions and drive newly leased cars, but are they any closer achieving financial independence?

Rather than buying our freedom, the luxury trap keeps us focused on maintaining, or inflating, this luxurious lifestyle. It’s such an easy trap to fall into, regardless of your income level because people at all income levels want nicer things.

A Few Examples of The Luxury Trap

It’s not hard to think of examples where it’s easy to fall into the luxury trap:

  • Bigger homes
  • Nicer vehicles
  • Better food
  • Luxury hotels
  • First class airfare
  • Fancy jewelry
  • Name brand clothing
  • Frequently dining out

While there are many examples, I’m going to focus on two of them.

The Amazing, Expanding Home

The average size of a home in the 1960s and earlier was just 1,500 sq. feet. Today the average new home is over 2,200 sq. feet. That’s an increase of more than 45%.

But the interesting thing is that while homes have increased in size, our families have gotten smaller. In 1960 the average number of people per household in the United States was 3.33; today that number is 2.54. That’s a decrease in family size of 31%.  Shouldn’t homes be getting smaller as well?

The Luxury Trap of Bigger Homes
Source: U.S. Census Bureau

We don’t need the extra square footage to accommodate larger families, so why are home sizes growing while family sizes are shrinking?

Why are people going into massive debt to by more home than they need?

Is it because we’ve fallen into a luxury trap of more square footage, high vaulted ceilings, guest bedrooms, floors made from exotic wood or stone, custom crafted kitchen cabinets, high-end stoves, powder rooms, and more?

All of those things are very nice, but are they necessary?  Or are they slowing down your journey to financial independence?

The Incredible Automobile

Modern vehicles are truly incredible machines. Have you been in a brand new car recently? They’re amazing machines that ooze modern conveniences, safety features and niceties. It’s no wonder we’ve fallen into the luxury trap of needing these upgrades in our cars and trucks.

We “need” power windows in our vehicles because ain’t nobody got time to crank a window up and down by hand. And what about power seats, keyless entry, cooled leather chairs, heated steering wheels, moon roofs, entertainment systems, HD monitors built into head rests?!

All extremely cool items to have in a vehicle! And once you’ve had them, it’s tough to go back.  Seriously, when was the last time you hand cranked a window in a vehicle? The next time you are shopping for a car, would you consider a stripped down version that had manual everything and zero convenience upgrades?

Most people won’t. I know this because I sold cars for several years and watched as buyers up-sold themselves to nicer and more luxurious cars.  Just more evidence of the luxury trap in action.

Keep The Money You Make

If you live in the developed world, make a good salary and are still living paycheck to paycheck, then you’ve almost certainly fallen into the luxury trap. It’s easy to do!

And breaking free is simple enough; you just need to change your priorities around. You’ve got to want “stuff” less than you want financial independence.

The good news is that once you break free of the luxury trap and start pursuing FIRE, you can become financially independent in a relatively short amount of time.

Escaping The Luxury Trap

It’s dangerously easy to continually upgrade and inflate your lifestyle. And to be honest, it’s also kind of fun (that’s one reason it’s easy to do). But few of us ever go in reverse and deflate our lifestyles.  And that’s too bad because lifestyle deflation is the secret to breaking free of the luxury trap.  Those that do are poised to reach financial independence much sooner.

Here are six examples of people that have seriously deflated their lifestyle to shatter many luxury traps that were holding them back financially.

How to Deflate Your Lifestyle

Deflating your lifestyle and breaking free of your own luxury traps begins with self-reflection and taking an honest inventory of your life.  As you do so keep in mind that luxury traps aren’t limited to big ticket items. Your habit of eating out multiple times per week could be a luxury trap that you’ve fallen into.

Lifestyle Deflation is the key to a #HappyLife and #FinancialSuccess. Learn how to #DeflateYourLifestyle, avoid #LifestyleInflation and #LifestyleCreep and see exactly what five real life people did to adopt a form of financial #minimalism and become #FI in the process. #FIRE #FinancialIndependence #RetireEarly #EarlyRetirement

Identify the luxury traps you’ve fallen into

Identifying the luxury traps in your life is something that only you can do. Nobody but you gets to decide if that new car you’re driving is a luxury trap or a necessity. And even if your car is a luxury, that’s nobody’s business but your own.

Eliminating all the fun, cool and admittedly needless stuff out of our lives sounds awful, and doing so just to reach FIRE a few years sooner sounds like a terrible trade-off to me.

However, if you feel your lifestyle has become over-inflated, and if you want to speed up your journey to financial independence, then you’ll need to be honest with yourself.  And the truth is that *most* things in our lives are wants, not needs.

The key is finding a balance between being overly excessive and extreme frugality.

Prioritize the luxuries in your life

After identifying your luxury traps it’s time to decide what gets to stay, and what gets eliminated.  Start by putting things into one of three categories:

  1. Stuff you’re unwilling to live without
  2. Things you’d like to keep, but are open to eliminating
  3. Items that add no real value to life

This is the hard part because it’s easy to justify our luxuries and you might find yourself putting everything into that first bucket.

If you do find yourself struggling with how to prioritize things it’s helpful to remember that things you eliminate can always be replaced later.  Deflating your lifestyle can be a temporary strategy to help you get out of debt, or reach a certain net worth milestone.

Luxury items and experiences are great, but they should probably be reserved for those that are on solid financial ground.  And once you get there, then feel free to treat yo’ self all you want!

Taking action

Personally, I have zero intention of removing all of the nice things from my life.  But there really are a ton of things that I don’t really need in my life that cost me money.

Lifestyle deflation tip: track your spending

Using free money management dashboards like Personal Capital make it easy to find bad spending habits. I knew I was spending a lot of money eating out, but I had no idea how much until I saw my ‘restaurant’ category in the Personal Capital dashboard. I was blown away.  But once I knew how inflated that spending had gotten, I was able to easily get things back under control and break free of that luxury trap.

Here’s a list of a few luxury traps we’ve eliminated from our life:

  • Traded in our Mercedes GL450 for a bus pass
  • Moved out of the fancy home with an amazing views of the Seattle and Bellevue skylines
  • I drove a 20 year old car (with unknown mileage because the odometer only went to 99,999), for years
  • My wife drove a 12 year old used minivan with high mileage for years
  • Eliminated our second car for three years (not easy to do as a family of six)
  • Temporarily moved into my parent’s basement
  • We temporarily moved into my in-law’s basement
  • We uprooted our kids and relocated over a thousand miles away from family & friends

All of these things were done to help us get ahead financially in some way. Most of the things we’ve given up were nothing more than expensive luxuries that didn’t make us any happier than we are today without them.

Whenever I’m on the fence about eliminating a luxury trap and deflating my lifestyle I ask myself this question: would I rather have this thing or would I rather have financial freedom sooner?

Chime in!

Have you fallen into the luxury trap?  Do you have plans to get out, or are you comfortable enough that you don’t need or want to break free?

By Ty Roberts

Ty Roberts is the founder of Camp FIRE Finance, and a husband and father of four living in the Seattle area. He's a fan of the 4% rule, 80s movies and music, dad jokes and cast iron cooking.

4 replies on “The Luxury Trap: When Niceties Become Necessities”

But isn’t moving away from family and friends in order to make / save more money anoth r example of The Luxury Trap?

Hm, I’m not sure. Being able to *afford* to move is certainly a luxury not everyone has. But staying in an expensive place that leaves you unable to save or invest in order to be near family & friends would be a luxury trap.

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