For some reasons, people tend to spend more when their income increases.
Take the example of a student Nick who just left college where his spending habits were not only low but religiously frugal. He got a high paying job upon graduation and all of a sudden, what never mattered to him as a student became his bull’s red rag. He could not imagine sharing an apartment with roommates or sharing a ride to work as he did to class in college.
His way of life changed all of a sudden with just a little increase in his earning. Nick now wants to own a huge house in a plush neighborhood, a brand-new car, perfect clothes, and all the expensive things.
While it is bad and may lead to poor financial decisions like borrowing to pay bills and financial insecurity, lifestyle inflation is something that creeps in at some point in life.
The most important thing, however, is how to strike a balance.
You can own as much as you have dreamed about before getting your current high paying job and still make plans on how to sustain what you have by investing. This may not lead to huge returns at the beginning, but it would be worth it in the future. In this article, we would try to answer the big question about lifestyle inflation-WHY.
You probably are not aware of lifestyle inflation
Lifestyle inflation is that monetary dynamic that reveals the reality that when the household income increases there is a corresponding increase in the household expenses. Dave Ramsey described it as when you increase your household spending as your income grows.
When your salary receive a boost, and you move up in your career, it’s easy to slip into a sense of being entitled to all the things you couldn’t get when you earned less.
These could include adding or upgrading a service such a cellular phone service, buying more on credit and therefore increasing one’s minimum payment, going out to eat, etc.
This attitude naturally leads to overspending without you realizing it.
Becoming conscious of the fact that you increased spending just because you had excess money from the salary raise will enable you to slow down on fast spending.
Are you living with lifestyle inflation?
Measuring success with material things
How else would our neighbors know we have made it if not through the fancy cars and huge houses?
For many, being financially successful means having a commensurate material possession to show for it.
However, the problem with this mindset is that you don’t actually have to be wealthy to have all the appearances of wealth. The ease of accessing credit makes it easy for anyone to buy cars, homes, luxury goods, and other things, without being actually financially successful. In the end, many people end up struggling with huge debts while trying to live like they are actually wealthy.
You have to realize that the true measure of success does not lie in material things.
Good health, a happy home, love, friendship, and memorable experiences are better indicators of success.
So long as you find contentment in your quality of life, there should be no need to prove your success to anyone by needlessly acquiring material things.
Keeping up with the Joneses
Just because James across the street drives a BMW doesn’t mean you need to replace your Ford Focus with a brand-new Mercedes. The Ford, just like the BMW can still take you anywhere. Really.
Often, people try to live their lives according to cultural expectations with regards to standards of living.
In recent times, this has been made worse by social media. It’s not easy to ignore the shows of affluence as you scroll through the newsfeed and make comparisons to yourself.
Do not let anyone, even family, push you into spending money dictated by the way others spend theirs. The problem with keeping up with the Joneses is that you can never succeed- there’s always someone with a pricier car, bigger house, and more expensive vacation trips.
I deserve it
Another reason why we choose to cave in or give in when it comes to lifestyle inflation is that we often embrace the attitude of I deserve it. The reality is that nothing could be more truthful than that because of your hard work and sacrifice, you do deserve what additional money comes into the household. However, an excellent idea of not spending extra money that comes into the house right away because of the thinking you deserve it is to delay any purchases for a period of time. This period of time could be anywhere from a day to a week or longer.
Following that delay in time, the attitude of “I deserve it” may give way to thinking of “do I really need it.”
One has probably heard the story about the children and the marshmallows. The experiment is to place one marshmallow in front of a child with the instruction being if they can wait to eat it they will be rewarded with two.
It is a fascinating study on self-gratification or immediate reward.
It is with the attitude of I deserve, and I want it now. If that impulse can be delayed the rewards of two marshmallows will be the future reward.
Earning more as you advance through life helps you to achieve your money goals. However, take great care not to fall into the trap of feeling you have to prove your success to anyone by overspending.
This will have you wasting the windfall before it makes any significant difference in your finances.
You should instead, design a plan to put the extra money to work which will help you change your financial life or achieve your long-term financial goals faster.
Being rich requires a cumulative stream of income. It is why financial experts and business leaders invest more than they spend. The lifestyle inflation comes from this gap-while the rich invest, the poor in a bid to meet up with just one aspect of the affluent lifestyle, spend. Often, they spend more than they earn.