Lifestyle inflation is when one increases their spending as their income goes up. While spending more might seem like the most natural thing to do when income goes up, if left unchecked, it can make it perpetually difficult to get out of debt, save more, or may come in the way of meeting big financial goals. Lifestyle inflation oftentimes leaves people subsisting from paycheck to paycheck making it impossible to meet unforeseable setbacks like medical bills.
IS IT REALLY A NECESSITY?
A higher income is not always equal to wealth building. Once a fatter cheque arrives the things that once were “luxuries” become “necessities”.
For example, sharing a two-bedroom house with other roommates may once have seemed like the most economical thing to do to keep housing and utility spending down, however, once your pay goes up, it suddenly becomes unacceptable. The most appropriate thing to do, it seems, is to get a one bedroom apartment and live alone.
However, do not rush to spend. No matter how tempting, and exciting it may seem. Before you make a hasty decision, think about the pros and the cons from the decision you are about to make.
Would it really hurt for you to consider sharing a place with a roommate for another couple of years? If you are still single, do you really need to live in a large home? Keeping your spending low while your income increases gives you the opportunity to save a little bit more, invest more and ultimately help build your wealth.
Besides, if you really think about it, you were surviving on your previous income; do you really need to dramatically change your lifestyle as much? See how you can better save, and pay off your debt. You will thank yourself later for this.
SPEND MORE ON EXPERIENCES
People tend to increase their spending each time their income increases, because they think purchases will make them happier. This is not true. Research shows that while money can to some certain extent make someone happy, once basic needs are met, increasing lump sums of money does not add any happiness at all. This is why you can find a filthy rich man completely depressed and broken.
Lasting happiness correlates to the quality of relationships we have. Buying that bigger car, moving into that bigger home, buying the latest jewellery in the market, are all material things that will give you short-term happiness.
In the moment, you may feel a wave of happiness, but after a while, you begin to realise that there is an even bigger house, bigger car, and shinier ring. If you are not careful, you may keep chasing happiness with money. Happiness cannot be bought.
It can only be experienced. If you want to spend more money, spend more money on experiences. Spend more money on building memories that you will cherish forever. These will add more value to your life and will improve your quality of life.
MAKING GRADUAL CHANGE
Alright, so you really, really want that new car, you really want that new house. Just remember that as you make these big purchases you will require more upkeep.
If this is your true desire, keep in mind that you should not go from zero to 100 real quick. Instead, opt to make the changes in your life gradual, so your pocket can adjust to it appropriately. Celebrate the little changes modestly, and give yourself a little pat on your back for progress made.
There are circumstances that force you to spend a little bit more, like when you have a new baby in the house, or when your children are outgrowing their old clothes and need a new wardrobe. Plan ahead, and make sure you can afford the changes. Make it gradual so it does not seem as overwhelming.
CALCULATE THE CHANGES TO BUDGET
Oftentimes, after a salary rise, people get excited and may end up going on a spending spree. If you get a salary raise, before you get too excited about it, take a moment to calculate the real changes in your income. After taxes and expenses you might be surprised that the net rise is not as significant as you initially thought.
Once you take time to calculate the real change to your income, then you will be able to determine how that extra money is going to benefit you.
If the cash is not as significant as you hoped, perhaps consider putting in the extra cash into your savings. You really never can have too much savings. Spread out your spending, take your time and enjoy the phases.
DELAY YOUR LIFESTYLE INFLATION
It might be inevitable that you will eventually have a more expensive lifestyle. However, this does not have to equal debt. Be consciously aware of the choices that you are making and opt to delay your lifestyle inflation for a couple of years.
You can focus on stabilising your income and job before spending huge amounts of money. If peer pressure gets to you, remember that you will have more money in your savings account! Compounding growth over time is all that really matters.
DO NOT COMPARE YOURSELF WITH OTHERS
Personal finance is a unique and personal journey that cannot be replicated. Do not focus on what other people are doing.
If you catch yourself being envious of others and wanting to play catch up, gently remind yourself that the journey of personal finances is all about priorities and people have different priorities from the ones you have.
Keep your eye on the ball and always remember your long-term goals. Choose to be grateful and content with what you have. Instead choose to take control of your free will.
Choose to live the life that you want, without apologies. When your debt piles up, you go into debt alone, and will have to come out of that debt on your own. It is not worth risking your personal finances just because of a few societal expectations. Make your own rules and live by them!