Back in my college days, I had an old 1998 car that had seen many miles. The sunroof and CD player were dysfunctional, but it had reliable air conditioning for summers and it served its purpose by helping me commute. After my graduation, a small voice in my head prompted me to indulge myself a bit. After all, I was on the brink of a better job and better lifestyle, leaving the days of penny-pinching student life far behind.
Post graduation, I swiftly transitioned to a more modern car and even planned a summer cruise. Although treating oneself occasionally is not a problem, these indulgences also increase the tendency for lifestyle inflation.
WHAT IS LIFESTYLE INFLATION?
Lifestyle inflation signifies a rise in spending and consequently a rise in the standard of living as income increases. Examples include relocating to a bigger house after securing a promotion or dining out more frequently after a raise. The catch is that lifestyle inflation often results in overspending. Some people even inflate their lifestyle beyond their means.
When I switched to my new automobile, I created an additional expense for the monthly payments on top of my student loans. As much as my husband and I could afford to elevate our lifestyle when we purchased a new house, it doesn’t make sense to inflate all areas of our life. Over the years, I have resisted lifestyle inflation in certain aspects with the focus on my real objectives. Here are five strategies to counteract lifestyle inflation.
1. DEFINE SPECIFIC GOALS
Your goals are invaluable. They shape up your life and choices. When you set financial goals, they need to be specific and well-defined. It becomes challenging to succumb to lifestyle inflation when your goals are clear and precise.
For instance, a broad goal like ‘improving quality of life’ opens up a wide array of options. Purchasing a new 4K Ultra TV or taking a financed holiday could create a sense of betterment. However, if you set concrete goals such as becoming debt-free or securing your children’s college education without loans, you would have a clear picture of what it takes to attain those goals and accordingly manage your expenses.
2. RESIST THE URGE TO COMPETE
The urge to compete with others is possibly the topmost factor contributing to lifestyle inflation. The reality is, there will always be someone wealthier than you. Meaningless competition for owning the latest and the best of everything makes no sense. For example, I recently decided to buy a house. Instead of trying to keep up with everyone else, I opted for a house that I could afford and that suited my lifestyle.
By planning ahead and choosing mindfully, you can comfortably manage lifestyle inflation.
3. SPEND LESS THAN YOUR INCOME
One of the most effective ways to combat lifestyle inflation is to ensure your expenses do not exceed your earnings. Tracking your income and sticking to a budget helps you understand your spending and plan accordingly.
To manage under your earning limit, you should maintain a simple, yet satisfying lifestyle. This way, you won’t just spend because you can. Tracking expenses and adhering to your budget will enable you to use surplus money to achieve your financial goals.
4. IDENTIFY AND AVOID IMPULSE PURCHASES
Impulse buys can be detrimental and often lead to lifestyle inflation. Such unplanned purchases are usually emotional and can distract you from your budget, and ultimate financial goals.
Instead, achieve lasting happiness by avoiding impulsive shopping. Identify your triggers, and sidestep certain items or stores especially when you are trying to enhance your lifestyle, not clutter it.
5. USE ANY INCREASE IN INCOME TO GROW FINANCIALLY
Once your goals are defined and you have a pleasing budget, there’s no need for unnecessary spending. By settling for a manageable and affordable lifestyle, you can make lifelong commitments.
Then, income improvements like raises, tax refunds, and bonuses can be utilized to support your financial growth.
Remember, occasional lifestyle inflation is acceptable if it’s well planned. However, constant lifestyle inflation can obstruct your path to financial goals. If you’re aiming for quick financial stability and eventual financial independence, bypassing lifestyle inflation is crucial.
