Lifestyle inflation

HOW TO MANAGE LIFESTYLE INFLATION

HOW TO MANAGE LIFESTYLE INFLATION


Most people tend to spend more money if they have more money to spend. Consider a college graduate, he is embarking on his career, he settles into  a comfortable apartment for Rs.10,000/- a month. A couple of years later, his salary increases, so he finds a “better apartment” for Rs.25,000/- a month. The old apartment was adequate, it was in good condition, at great location, and with nice neighbours; however, the new one is located in a more elite neighbourhood. Despite the fact that the original apartment was fine, he traded up to a more expensive apartment not because it was his need, but because he could afford it.

When a person advances into a more profitable position in his or her career, his or her monthly expenses typically rises. This phenomenon is known as “lifestyle inflation”, and it often leads to a problem, because even though you might still be able to pay your bills, you are limiting your ability to build wealth.

Inflation

WHY LIFESTYLE INFLATION HAPPENS

People have a strong tendency to spend more if they have more. A couple factors are at work here. One is the “keeping-up-with-the-peers” mentality. It’s not uncommon for people to feel like they have to keep up with their friends’ and/or business associates’.

Remember, lifestyle inflation leads you towards a lot of debt over a period of decade for maintaining your wealthy appearance. Just because your friends’ appearance is rich doesn’t mean they are and it also doesn’t mean they are making financially sound decisions.

SPENDING MORE MAKES SENSE – SOMETIMES

There may be times when spending in certain areas makes sense. You may need to upgrade your wardrobe in order to be dressed appropriately at work. Situation changes over time and you are likely to spend more money on things you previously avoided altogether. A certain ratio of lifestyle inflation is to be expected as you evolve.

AVOID LIFESTYLE INFLATION

Accepted, certain lifestyle inflation is unavoidable, but remember every spending decision you make today will affect your financial situation tomorrow.

Even with a considerable pay increase, it’s quite possible that you end up living paycheck to paycheck, just because you go overboard with your expenses: ‘the more you earn, the more you burn’ approach.

To avoid excess spending as you make more money, I would advice to save or invest a healthy percentage of your increased wages first and later spend.

Deepak Sir
Deepak Dhabalia
Wealth Coach  

 

 

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