Lifestyle inflation is simply a result of not being able to handle the extra cash properly. A bump or raise in salary is not ‘fun money’. The faster you spend it, the sooner you will realize that your bank account is back to earlier savings, if any. Overspending is the culprit. Avoiding this lifestyle inflation is important to add more money to your savings and grow rich with every pay hike. Follow these simple ways to avoid lifestyle inflation.
Use Windfalls to Clear Debts
When an unexpected amount comes your way, use it for your financial well being. Do not squander your entire tax refund or bonus on sundries, rather direct it towards debt or a financial goal. More important is to clear a debt you are trapped in for a long time. Money is a tool that’s meant to be spent, so make sure you use it in the best way possible. In simple words, if you are with more money, consider things that add value in your life.
Don’t spend to show-off; Hangout with like minded people
It is human nature to display more than you can afford, that you are better than your friends or relatives. So, we actually end up spending more than what they want. The opportunity increases more with an extra funds received as bonus or incentives or recovery of loans. To avoid such influence, it would be wise to hang out with friends that match your lifestyle. Being around with friends which are like minded and do not make judgement based on your earning capacity or purchasing power, is advisable.
Proceed With Little Adjustments
If you really want to combat lifestyle inflation, begin with focussing on one area at a time. When you try to cut back on everything all at once, the result is an entirely different lifestyle, which is tough. If you want to roll back your spending on clothing, restaurants, and gadgets, challenge yourself to first cut back on eating out for 60 days. Once you’ve got your restaurant habit under control, move on to clothing (or gadgets, but not both).
In conclusion, some level of lifestyle inflation may not be avoidable, but it is important to understand that every spending decision made today affects your overall financial future. If you do not avoid lifestyle inflation, even with a substantial pay increase you end up with liquidity crunch. Just like you did when you were making less money.
So, save more and start your financial planning with day one to secure your financial future. For more personal advice on money management and right investment choices, approach online fiduciary like ArthaYantra. We help you add value to your money by guiding with right choices.
