Before I went full-time self-employed, all of my finances were automated. I had a DB pension and stock plan with my employer. I also made automatic monthly transfers towards all my savings goals. Life and money were “easy,” but then I quit my job.

This was new to me. After nearly two decades of stable income, I traded it for fluctuating paycheques, but I also had flexibility with my time. Oh, and my wife was on maternity leave so our household income was down. 

Obviously, I had to make some changes to my finances to keep us on track. It really didn’t take me too long to get things balanced, but I made one mistake recently that has been a lingering concern – lifestyle inflation

accidental lifestyle inflation

Letting a “raise” get to my head

For those unfamiliar with the term lifestyle inflation, it’s when you start spending more after getting a raise or earning more income.

When I was full-time, I would simply increase my savings whenever I got a raise, so I never got tempted to spend that extra money. However, now that I’m a freelancer, money comes and money goes.

I recently had a new source of income present itself right before my wife and I took off for Europe. Instead of automatically saving it like I used to, I told my wife that we would treat it like an expense account while we were away.

We had talked about this trip for a long time, and we knew we really wanted to enjoy ourselves. Instead of taking the steps to save money on food, we didn’t concern ourselves too much.

We were headed to Italy, if we wanted gelato, pizza, or pasta, we knew we had the funds available. I justified this decision by telling myself that once we got back home, I’d go back to being smart with my money.

The problem is, that didn’t happen.

Continuing the spending trend

As soon as we got back to town, we had no groceries. This was expected and even if we did have food in the fridge, there’s just no way we were going to cook after an 8-hour flight with a toddler. Of course, we still had to eat so we ordered a pizza.

The next day, we had to catch up on laundry and didn’t have time to get groceries, so it was takeout for lunch and dinner. We’d been back less than two days and we had spent close to a hundred dollars on eating out.

We finally had time the following morning to get groceries, but immediately after picking them up, I had to head downtown for a few meetings. As a result, I had no time to prepare meals (although I ate lunch at home) and ended up spending the following:

  • $6 – Bubble tea (pre-meeting snack)
  • $3 – Muffin (post-meeting snack)
  • $15 – Dinner
  • $2 – Tea (on my way home)

I ended up spending $26 for the day which doesn’t sound like too much, but that’s $130 a week (if I actually did this consistently). I honestly don’t understand how people spend this much on eating out every week and I haven’t even factored in the cost of lunch!

The only reason I even realized that I spent that much was that I keep my receipts since I can expense some items.

When you’re making small purchases of two, three, or six dollars, it doesn’t seem like a lot, but it adds up.

Until this accidental lifestyle inflation happened, I never concerned myself about my spending. Fortunately, this audit made me reconsider my spending habits.

What I’m doing about my spending

I won’t be able to change the fact that my income fluctuates, but I have taken a few steps to keep my spending in check.

I save 70% of income – This isn’t because I’m super frugal and want to save every dollar possible, but as a self-employed individual, I need to be vigilant with my savings. 50% of my income is put aside for personal income tax and HST payments. The other 20% is for general savings. Keep in mind that I’m married and live in a dual income household (my wife is back to work in a few weeks) which is why I only need 30% of my income for day-to-day expenses. While my off work, I only put aside money for taxes.

I meal plan – Without a doubt, meal planning has been the easiest way for my wife and I save money. Generally speaking, we plan every meal and ensure we have the groceries to prepare those meals. Of course, we also include eating out in our meal plan since you gotta treat yourself right?

I prioritize my spending – By focusing on what’s important, it’s easy to stay on track. Obviously, our monthly expenses get paid first, but after that, I try to focus on TFSAs, my daughter’s RESP, our RRSPs, vacations, and paying down my mortgage. I know it sounds like a lot, but we’ve made it work.

Final thoughts

It’s not hard to accidentally or intentionally spend a lot in a short period of time. Without some kind of goal in mind, I’d literally be spending money on anything and everything. I’m glad I quickly realized my recent faults and have taken corrective action.