When a person advances into a better-paying position at work, their monthly expenses typically follow suit. This is commonly referred to as lifestyle inflation.
If this happens to you, it can become a problem because you may still be able to pay your bills, but your ability to turn your higher salary into a way to build wealth becomes limited.
Earlier this month, Accrue co-hosted a Twitter Space with Ayomide Salako Eniola (@unkleayo) on Lifestyle Inflation and how it can ruin your finances.
The conversation centered on how you strike a balance between beating lifestyle inflation and living the life you want while also taking care of yourself.
What is Lifestyle inflation, and Why It Happens
Spending more on the things you want when you have more money is natural. After all, we work hard to buy and do what we enjoy!
But here’s the catch: you can become trapped in a cycle of living paycheck to paycheck or, worse, go into debt.
People tend to spend more when they have more money to match their current income. As your income grows, so does your desire to acquire new and luxurious products such as cars and clothing, even though existing products work perfectly and without flaws.
Beating Lifestyle Inflation
- Initiating a reward system
To avoid impulse purchases, Ayo recommends tying your desires to your personal goals as rewards. This delays the purchase and compels you to work for it.
For example, if you’re a student and know you want to buy an expensive bag. You can tell yourself, “If I’m able to get 6 As this semester, I have earned the right to buy this bag.”
What you’ve done is you ended up buying what you wanted, but you eliminated impulse purchases, which could have a dent in your finances, and you included a waiting period.
Journaling is key in managing finances, and every young person should develop a journaling habit as It’s challenging for us to trust our minds to keep track of our expenses.
It helps us track how much money comes in and goes out. It can be done using a pen and paper or digitally using spreadsheet applications like Excel.
This lets you know your monthly expenses to help your financial planning and achieve your money goals and basically how the debt-to-income ratio works – all of the money that goes out for payments over your monthly income.
- Second purchase
There are slightly used products in good condition that can be bought in place of brand-new products. Several platforms make this possible, including Craiglist and Facebook marketplace, which are accessible in most parts of the world.
Whenever you decide to buy a new item, consider checking out these platforms to find similar products at a lower price to save money.
- Being in the right environment
Building wealth and beating lifestyle inflation is a mindset game. Only the right environment can help you cultivate this mindset.
The right environment entails having the right circle of financially savvy friends, always willing to share information, and focused on financial success.
These people are particular about how they spend their money, and their habits are easily transferable and a motivator for you to do the same to avoid lifestyle inflation.
Recovering From Lifestyle Inflation
The first step in recovering from lifestyle inflation is identifying and plugging all “financial leaks.” Being knee-deep in lifestyle inflation implies that you have been overspending, so to identify all financial leaks, you will need to backtrack every expense made, and it all begins with journaling.
As previously stated, journaling is essential in managing your finances. Write down every expense and assign a number to each amount that enters and leaves your account each month.
With these expenses identified, you can now begin to slash some by asking yourself about the necessity of a particular expense in your life and whether or not there are cheaper alternatives.
As you keep a journal to track your expenses, you will be able to see how much money you spend in a month and slash any unnecessary costs to help you gain control of your finances once again.