Lifestyle inflation tends to happen after you have started a new job or received a raise. Once there has been an increase in your salary you tend to want to spend more money- this spending can often get out of control because you believe that you can afford to spend more. Lifestyle inflation can lead to spending your entire paycheck without leaving any money to save or invest.
Lifestyle inflation can happen for a few different reasons:
1.You may have just started a new job and are trying to fit in You may find yourself going out for lunch more or wanting to purchase a new car or designer handbag.
2. It may happen when you are trying to keep up with the spending of your friends or family.
3. Feeling the need to reward yourself for all your hard work that went into earning the raise.
It is important to remember that you do not need to take on additional debt just because you can afford to, and that other’s lifestyle may not always be practical or sustainable.
Avoiding lifestyle inflation can be difficult but there are ways that you can work against it.
– Create a budget and stick to it. This way you can map out what expenses you have, what amount you want to save and know how much you will have left over at the end of the month.
– Ask yourself if a purchase is a need or a want. By asking yourself this, it will help you determine if you should go ahead with the purchase, or if it is unnecessary.
– Give yourself a cooling off period. A cool off period will help you reflect on any unnecessary purchases before you go ahead and buy on an impulse.
– Compare the cost of the purchase and compare it with the possible gains you could make from saving or investing that amount. You could be converting purchases you wouldn’t make otherwise into a more comfortable retirement.
By taking the steps to combat lifestyle inflation and keeping an awareness of the impact it can have you can help keep yourself on track for a more comfortable retirement.
