How To Avoid Lifestyle Inflation
Some people, no matter what they have, need more. Yes, I’m referring to those suffering from lifestyle inflation. They have nice things and have exciting adventures. But they can’t afford to live like this because they don’t save money. Saving money is imperative to being able to afford a lifestyle.
One of the biggest reasons saving money is so important is that going into debt or further into debt is a very poor choice when you need money. But you don’t have an option if you have spent all your money. You either borrow, or you do without.
There’s more to being able to afford something than being able to pay for it. You have to maintain it and be able to replace it when necessary.
Avoiding lifestyle inflation is one of the benefits of frugal living.
Managing your money and time always puts you in a power position.
What is lifestyle inflation?
Lifestyle inflation is best described as every time you get a raise or promotion; you spend all of the money you are now making. You spend the whole raise. In some cases, you spend more than the amount of the raise. And you acquire debt.
A person living with lifestyle inflation is not living below their mean, but it does have financial consequences.
Your finances are like a hampster on a hamster wheel. As hard as the hamster works, he never gets anywhere. And if your money is allocated before you receive it, neither do you. You could be in a financial mess.
Living below your means and saving money will help prevent that.
How To Avoid Lifestyle Inflation
- Make a budget
- Leave below your means
- Determan your needs and wants
- Save money
Examples of lifestyle inflation
Here’s an example of lifestyle inflation: College students
College students typically work low-paying jobs. You’ll often find several college students sharing housing. They conserve as much as possible because they don’t have much income but need to live.
Upon graduation, students usually get better-paying jobs. With the larger incomes, they decide they’re tired of living like a college student and get their own apartments.
The new lifestyle often includes a new car and a few credit cards. A person who does this is now suffering from lifestyle inflation. Saving is not given much consideration, and we all know that if it’s outside the plan, saving doesn’t happen.
More than just people new to the workforce make this mistake. It’s almost everyone.
According to Bloomberg.com, 2 in 3 people can’t cover a $400 emergency. That’s because most people need to save money.
Even if a graduate doesn’t fall into this trap soon after they leave college, there’s a more gradual way to be caught in lifestyle inflation…
Lifestyle Creep
Some people find the money they make sufficiently covers their lifestyle. They have enough to live on and pay their bills. They may even have something left over – this week, this month. Great. It’s there if needed/wanted later, but that’s not a plan for saving money. A saving plan indicates saving is a priority.
As time goes on, life always becomes more expensive. These people eventually find themselves with no surplus. They begin living hand to mouth; for now, it’s not a problem. The idea of saving still doesn’t occur to them.
Then, an unplanned event occurs, maybe a car accident, sickness, or a number of other things. Now it’s a problem. They need more money to cover this large, unplanned, expensive event.
They allowed their wants to creep into their lives and take over. They ate out. They went to movies, took road trips, and bought pricey gifts for birthdays and Christmas until the day they couldn’t. As that occurred, they learned to live smaller but as large as their money would let them. The idea of saving never occurred.
Lifestyle Inflation – It’s a Trap
One day you wake up, and something has happened. Maybe someone is sick, or your car breaks down. Perhaps you get your wake-up call when your daughter tells you she’s getting married and there’s a wedding to plan… At any rate, you realize you can’t afford to resolve the issue.
Do you see how close you are to being broke by living paycheck to paycheck?
Making and sticking to a saving plan early in life will help circumvent financial issues that occur later.
Why Lifestyle Inflation Happens
As you earn more and more money, you’re going to spend more and more. It’s natural. The list of things we can buy is endless: nicer homes, newer cars, better-looking clothes, extended vacations, and more. Spending your entire raise or promotion on living now is easy, and you save nothing.
. The money you earn now is meant to support you and provide for your future. So, if you are not saving money now, you are living beyond your means.
When Spending More Makes Sense
Some circumstances/emergencies require you to spend more. You need to save money now to mitigate the effect on the rest of your budget when these occur. A budget with a savings plan gives you a platform for recovery after a financial crisis.
Avoiding Lifestyle Inflation
Living with lifestyle inflation is a significant problem because turning your finances around could take years. If that isn’t bad enough, you could damage your credit.
Live Below Your Means And Save.
Get ready now. Start budgeting your income and decide to save money. Don’t wait for it to be too late.
It’s OK to enjoy your promotion but do it with a modest amount. Live below your means and save most of your raise.
Needs and Wants
Too often, people get caught up in the needs vs. wants game. They want something so badly that they feel like they need it. “I need this because I want it.” “I work my butt off. I deserve this.” “I don’t care what it costs. I’m buying it.” These are entitlement issues.
It’s important to decide your needs and wants and prioritize them before you are actually in the financial position to do something about them…Then save with expectation and preparation.
Another aspect of the trap is “keeping up with the Joneses.” It’s easy to think, “If they can afford it, so can I.” But you need to know what’s going on with their finances.
They may have saved up and paid cash. They may now have a soul-crushing amount of debt. You can do the first option. You don’t want the second.
Decide what your needs are. Concentrate on meeting your needs and saving money.
Conclusion
Avoid lifestyle inflation. Live below your means and save money.