There are a lot of people who experience lifestyle inflation brought about by several factors in life. The most common culprit when you suddenly find yourself upgrading your lifestyle is getting hands on more money. It can be from a recent increase in pay in your current job or even earning a good amount of money from your side business.
There are also some people who find that they are increasing their lifestyle simply because they have too much time on their hands. For one, this can happen when you choose to retire early. You might find trouble filling up your day with activities and resort to expensive purchases. This will not only create problems in your budget but also put your retirement nest egg in peril.
Dangers of lifestyle inflation
Lifestyle inflation can also be brought about by the lack of financial discipline. Sometimes, people just aren’t strong enough to control their urges and resist unnecessary expenses. If you are having trouble trying to picture the challenges of what an inflated lifestyle brings, here are a few of them.
You pay longer for your debt
As soon as you start to increase your expenses, you only get to pay the same amount towards your debt obligations. CNBC even reports that households have an average of $16,000 in credit card debt. There might even be times that you have to cut down on debt payments just to keep up with your lifestyle. What this does is it takes away your chances of paying them as early as possible and might even put you behind schedule.
LIfestyle inflation can also increase debt accounts that you are paying for. It could be a hard balancing act to not go overboard with your spending. When you do, you do not only miss out on potential savings but increase your expenses as well. An inflated lifestyle could lead to big-ticket items with monthly payments that can add up to your budget.
Saving money becomes harder
As your expenses go up, you would find it challenging to put away some money to save. If your lifestyle inflation is coming from an increase in income, saving is always one of the first ones to suffer. Rather than put away the extra money for future use, you choose to spend them all and increase your lifestyle than your savings.
Keeping up with other people
Once you start to increase your lifestyle, it is not too far off that you start comparing yourself to people around you. Bloomberg explains that this can be part of an innate competitive edge. You put a lot of effort in showing off what you have in your garage simply because your neighbor has a new car. It is not impossible that you start waving your new smartphone at work because a colleague had a new phone the other day. You get sucked right into that mentality of trying to outdo other people and your finances suffer for it.
How to control it
Now that you have an idea how lifestyle inflation affects your life, here are a few things to look into so that you are able to get out of that trap and regain control of your finances.
Revisit your goals
At this point, you need to have a definite set of short and long-term goals in life. It is not hard to see that these goals would usually have a financial component tied next to them. Do you want to pay off your student loans? You need to have a job to do that. You want to buy a new car or a house for your family? It is important to be able to save up for the downpayment and have enough for the monthly payments. Retirement plans also have a lot to do with how much you can save now for your expenses tomorrow.
Taking a look at these goals should help ground your feet and remind you that you have to save that money. Rather than giving payoff that urge to shop at the store, you are reminded that you want to retire early. This means that saving the money can help you achieve that goal. The same goes for your other goals in life. When you are reminded of all the things you want to achieve, it gives you the chance to step back and make better decisions in life.
Take a look at your budget
It would also be good to take a look at your household budget when you are dealing with lifestyle inflation. What this does is it reminds you of all the expenses you have to meet on a monthly basis. Apart from the usual basic necessities, you get to see some big ticket items you might have. As you are reminded of all the financial obligations you have to fulfill, it could help control your spending and put more into the payments.
Save up with auto debit program
Technology has come a long way in helping people manage their finances better. It has made it convenient and a lot easier to perform simple and even complicated financial tasks. From checking your account balance to transferring money and even making payments, they are all easier to do now thanks to technology.
That being said, it can also help you manage lifestyle inflation. One of the things you can do is to automatically save your money even before you get the chance to save it. If you recently received an increase in pay, send that amount straight to a savings account each month. This gives you the chance to work within your usual budget and force you to save that increase in your pay.
Prioritize debt payments
Another thing you can look into to help you get a handle on lifestyle inflation is to focus your extra money on debt payments. Rather than just going with the flow and increasing your lifestyle, you channel you additional income and pay down a significant amount of your debt as you work in paying it off.
As you do this, you give yourself the chance to pay off your debts earlier than the payoff date. Paying debt obligations earlier usually means you get to save money on the interest payment. Also, as you pay your debts off, you free up more funds in your budget. This can then be used to either pay down other debt accounts or save up for the future.
It might be a surprise to hear that one of the strategies you can look into to help curb lifestyle inflation is to give in to some of the spending. Needless to say, this has to be appropriate with whatever extra money you have. At the very least, it should not exceed what extra money you have.
If you get some windfall money, you could treat yourself to a new dress provided you need it. Shoes that you can use for work or even eat out with family and friends. As you give in a little, the important thing is to not overdo it. The idea is to not deprive yourself totally and at the same time, learn how to handle your income and expenses a little better.
Lifestyle inflation can really hurt your finances and it is better if you detect it early and be able to get out of it.