Received a raise in your salary lately? Perhaps you have landed your dream job or found yourself with a second income. More money is usually the first step into the lifestyle inflation beast’s lair.
Let’s say the bank offers you a bigger loan, or you inherit a large sum of money. Lifestyle inflation is more common than you think, and it can land you in a world of financial trouble if not carefully monitored.
So, what is lifestyle inflation and how can you prevent yourself from falling victim to its vicious downward spiral?
What is Lifestyle Inflation?
Lifestyle inflation is the term used to refer to the situation where people naturally spend more when their income increases – rather than save or invest it. This income can be any sort of income. It usually includes job promotions or significant paycheck raises.
When receiving this extra income, we tend to meet the increase in money by spending more. According to research, the cycle is never ending, and consumers can find themselves in a continuous struggle of never having enough money to ‘get by’.
The cycle is incredibly difficult to break free from. We work harder to live a more comfortable life; they then manage to earn more but spend above their means. Therefore, falling back into the trap of needing to work harder to earn more to live comfortably again.
3 Tips to Sidestep Lifestyle Inflation
Knowledge is power. Understanding lifestyle inflation can help you to navigate your finances wisely. Save any extra income that you receive and budget with confidence and surety.
Here are three methods that work wonders against the lifestyle inflation beast.
24-Hour Rule on Small Items
Smaller items usually fall into the category of impulse buying. Such items may include magazines, stationary, cosmetics, trinkets and toys, accessories and generally ‘nice-to-have’ items which are not immediate necessities. Before purchasing these, give yourself a budget rule of 24 hours before buying the item.
30-Day Money Rule on Large Items
Larger items that require a greater financial commitment need a 30-day money rule. These items are usually vehicles, big appliances, home renovations and jewellery. Waiting 30 days before making a purchase that may set you back will allow you breathing room to contemplate the consequences of making such a hefty financial commitment.
Do Not Deviate from the Budget
The word “budget” almost falls on deaf ears. Especially with the current rise in the cost of living.
However, your budget is your safety fence against a financial downward spiral. Keeping to your budget means that your extra income falls into the savings category and your financial health will remain in tip top shape. Keeping to your budget is one of the most powerful methods in keeping the lifestyle inflation beast at bay.