8 Ways That Will Help You Beat Lifestyle Inflation
As your income increases through the years, it is only natural to improve your quality of life by purchasing gadgets, a home, a car, etc. After all, you worked hard to earn for that money and you deserve to treat yourself, right? However, what happens is that most of the time, an increase in income is followed by an increase in spending. This phenomenon is often referred to as lifestyle inflation. Now you ask, what is lifestyle inflation?
What is Lifestyle Inflation and how to avoid it
Lifestyle inflation, as defined by Investopedia, is an increase in one’s spending when income goes up. It tends to continue each time someone gets a raise, making it perpetually difficult to get out of debt, save for retirement or meet other big-picture financial goals. Oftentimes, lifestyle inflation is what causes people to get stuck in the rat race of working just to pay the bills. Now that we have a clear view on what lifestyle inflation is, here are the ways we can do to avoid them or at least minimize its bad effects.
Acknowledge the fact that there is such thing as lifestyle inflation
The first thing you must know before battling lifestyle inflation is to know that it actually exists. If you are among those people who have a significant increase in spending as you got a raise or a higher paying job, then it is time
Know your needs and wants
Buying things impulsively can be easily tempting especially if you don’t plan your finances well. While there is nothing wrong with enjoying your hard earned money from time to time, you must also keep in mind that everything should be in moderation. You should able to determine the things you really need or which of them are just luxuries. Our essential needs constitute of the following: food, shelter, clothing, and means to make a living. Things other than that might be considered as a need or a want depending on a certain degree. If you are worried that your raises will go down the drain, have someone accountable who would help you remind your saving goals.
Being a financial responsible person takes a lot of hard work and discipline. Make sure to create a balance between what you save and what you spend to create a sense of financial stability and personal happiness.
Set your short term and long term goals
Having a short and long term financial goals helps you focus and keeps you reminded on why you are saving money in the first place. Each person has their own set of goals so it varies from person to person. Write down your goals and specific plans to achieve them. Your goals could be early retirement, totally pay off debt, paying off mortgage, etc. Whatever your goal is, it keeps you motivated on the things you wanted to achieve and will encourage you to put off that extra money from a pay raise to something that matters to you most in your life.
Once you have determined your short term and long term financial goals, it is now time to prioritize savings. Saving a certain percentage of your income is one of the keys to achieving financial stability. As your income increases, your savings should increase as well. Instead of overspending on things that you don’t really need, make your short term and long terms goals as motivation on why you are saving money. Also, saving money helps you to build your emergency fund that you can use in times of need.
Live beneath or within your means
One of the secrets in becoming financial independent is living within or beneath your means. This simply means that your spending is less than what you earn, therefore, having something to keep for the future. As your income increases, do not be tempted to increase your spending. Instead, maintain your simple lifestyle and put aside that extra cash in your savings instead.
Always stick to your budget
Having a budget helps you to understand more on where your money is going. As your income increases, it is only natural to have an adjustment on your budget. A good example of a budget is having an allocation on savings (this should be put first; remember the formula Income – Savings = Expenses) and prioritizing the most important expense down to the least important one. Having a budget helps you keep track on where your money is going and also help you to distinguish needs versus wants by prioritizing your spending.
Hang out with frugal friends
The saying “birds of the same feather flock together” holds true, especially in terms of finances. If you tend to hang out with people who spend lavishly, chances are, you will also have an inflated lifestyle to keep up with your friends. However, if you have frugal friends, you are more encouraged to spend less and save more. Make a conscious decision to choose the people who you will be spending time with. Stay close and surround yourself with people who have similar financial goals as you and who will support you on your frugal lifestyle. Having fun doesn’t mean you need to spend tons of money. Sometimes, the best things in life are for free or at a minimal cost.
Value experience over material things
It’s been proven time and time again that material things only gives us short-term happiness. If you start making more money, consider investing more in experience rather than material things. Going on a vacation, taking a class or learning a new skill can create more lasting, lifelong memories and can make you more satisfied and happier. Remember, the more material things you possess, the more you will be forced to work to pay for them.
There is nothing wrong in improving your quality of life and wanting better things in life. Above all, you worked hard to earn that money and you deserve to be pampered. Lifestyle inflation is inevitable. It is natural for us humans to desire more. However, the problem occurs when it is taken to the extreme. If you want to get ahead financially, create a financial plan and create a balance between your needs and wants. Remember, success is not measured by possessing a lot of material things but rather how you make your money work for you and for your long-term goals.