Lifestyle Inflation, they say making money is hard but for some it’s hard to stop spending. Earning more money should help people secure their future but if we look closely, we can see how people slowly start spending more and more out of habit. This habit is called Lifestyle inflation and as the name suggests, it consistently destroys people’s wealth. It is truly silent but deadly.
The Reason Why People Get Inflated Lifestyles
Now think about it, when you see your paycheck getting filled with extra dough, you imagine how to spend it – on luxuries that were previously out of reach like a high-end car or expensive real estate. Relaxation is natural, to a certain extent, you would get the bigger picture in life and don’t let it consume you. This is especially how people think after receiving a promotion, then spending leads to the term lifestyle creep which transforms luxuries into basics. Never knew an MKBHD video on the latest Apple product could go that far hey?
The Numbers Tell a Sobering Story
Consider a young professional earning $60,000 annually who receives a $15,000 raise. This additional $1,250 monthly income could dramatically accelerate their path to financial independence. However, statistics show that most people increase their spending by 50-70% of their raise amount within the first year. In this case, that means $625-875 of that monthly increase disappears into upgraded lifestyles rather than savings or investments.
The Compound Effect of Lost Opportunities
Approaching my deadpan example of a $60,000 earner professional who gets a $15,000 raise and thinks about the luxurious apartment while being entertained by his brain reasoning that it’s a good reward awaiting – Now set aside the fact that this was an absolutely stunning move and should’ve only worked in theory, after all, this is the internet and where statistics is a fuel that every motley is based on.
In other words, only three! I know an trunk full of supplements sounds lethal but it won’t even allow the said professional to save or invest in anything worth all those hours. To add salt to the wound, a study close by mentions that within 365 days people would ramp up their spending by 50-70 percent! Sounds more like an investment plan gone wrong or perhaps a get rich quick scheme.
Breaking the Cycle
The first step to overcoming lifestyle inflation is recognizing its existence. To ensure a comfortable future while enjoying the present, try these strategies:
First, proportions should be assigned with every excess income via the “50/30/20” rule. Use 50% to pay the bills, 30% to purchase non-essential items, and put away 20% for future use and making investments. Although this system allows for increased expenses, it still leads to further financial advancement.
Second, deliberate buying should be observed. Put off buying anything that is an improvement to the quality of your life for thirty days. This upholds a differentiating period that enables one to establish which factors are basic necessities and which are a not.
Third, consolidation towards a goal should be made automatic. Before upgrading your standard-of-living, set aside automatic transfers to increase future retirement contributions as well as other investments, this stops lifestyle inflation from developing at all. It is said that an amount of money which is considerably less than what one has used for regular purchases will hardly be spent.
The Long-Term Perspective
Wealth is not a function of earnings – you have to be able to save and invest a portion of that income. Many billionaires lead a relatively frugal life, remaining aware that financial independence is found only in the balance of consumption and revenue.
Once you are promoted in your job, as an example, think that it is the turning point for your emotions and character. One is for spending straight away and improving one’s standard of living and the other is for focusing on self sufficiency and independence in the long run. Many working for the latter eventually understand that it allows them to embrace the concept of working for pleasure, rather than necessity.
As a business manager, one must be aware of the effect of the standard of living and have mechanisms to control it if there is a rise in income so that the increase is not simply inflationary in nature. Money and wealth here are not the destinations but opportunities to do try something new, change, approach the world from a new perspective.
