20/05/2023
Lifestyle inflation refers to a situation where your expenses increase alongside your income. When you get a promotion or a salary increase at work, or when you land a new job and you're now earning way more than you used to, it is tempting to eat out or order food more than you usually do instead of eating home prep meals, and to buy a nicer car because you can now afford it, right?
"It's not that you can't make any improvements or upgrades when your income increases. Sometimes, spending a little more can improve your quality of life, or be necessary as your life changes and, say, you get married or have a family.
Lifestyle creep [or inflation] becomes a problem when it's eating up such a large chunk of your income that you can't afford to ramp up your savings in tandem with your earnings boost. At that point, your spending habits might impede on your ability to save adequately for retirement, keep a fully stocked emergency fund, or even pay down debt." - Becca Stanek, The Week.
While it is not wrong to buy the stuff you've wanted since you were a kid to heal your inner child, you just have to make sure that you don't do it so often that it's starting to affect your saving habits. Making budget adjustments based on your new income (of course, increasing the portion going into your savings should be a part of this) and sticking with it will help you control or even avoid lifestyle inflation. As advised by Investopedia, "Don't make huge changes to your lifestyle in the first few weeks; instead, celebrate modestly." This way, you can assess more clearly how you should make use of your additional money.
As someone who struggles with lifestyle inflation myself, the one thing that has helped me cope is to find additional sources of income to be able to afford the lifestyle that I want. It may not be the same for everyone and it is not as easy as it sounds, but doing so has inspired me to work harder.
Do you also suffer from lifestyle inflation? How were you able to overcome or cope with it?
Sources:
https://theweek.com/finance/1020966/what-is-lifestyle-inflation-and-how-does-it-limit-wealth
https://www.investopedia.com/terms/l/lifestyle-inflation.asp
