The Complete Guide to Lifestyle Inflation

In the past few weeks my publishing schedule has been erratic as I have struggled to find writing time along with my more hectic job role. This weekend, my husband ensured that I made out that time and has a post published on time by Monday J For years now I have been on a meagre annual bonus cycle with my marketing jobs. With my recent move to a sales linked role, the risk return ratio is pretty skewed. I either make a much heftier bonus with a certain level of team target achievement or I make no bonus. In all this anxiety, my brilliant imagination has been far busier coming up with ways to spend that money. Welcome to the word of lifestyle inflation.

What is lifestyle inflation?

Think back to the time that you started working, fresh out of college. Me? I was sharing a pigeon hole of a room with a fun roommate, surviving on a bare minimum salary in an expensive city like Mumbai and still managing to make almost monthly trips home to Delhi and to attend weddings across the country. Gradually I moved out to a studio apartment, living on my own and paying almost four times the rent that I was paying earlier. Today, even with a much higher salary I have now felt the need to really cut down on a lot of consumerist tendencies that had crept into my life, like meeting friends at expensive restaurants for food and drinks or buying expensive brands in clothing.

Investopedia defines lifestyle inflation as “increasing one’s spending when income goes up. Lifestyle inflation tends to continue each time someone gets a raise, making it perpetually difficult to get out of debt, save for retirement or meet other big-picture financial goals.

Why is lifestyle inflation problematic?

Essentially, lifestyle inflation refers to the upgrades we make in our spending which our not due to monetary inflation and our completely optional. A few lifestyle upgrades are quite necessary. None of us would really want to live like college students even when we earn substantial paychecks. However, when lifestyle inflation becomes a habit and goes overboard, then we are only creating problems for ourselves.

Lose sight of bigger future goals

Most of us dream of big financial goals that are sometime into the future, which require us to keep ploughing money to build up for it. When all our raises go towards fuelling an upgraded lifestyle, we end up losing sight of our bigger future goals. For instance, a pay raise might end up financing a bigger iPhone instead of increasing your savings rate.

Can become a never ending cycle

If it is a onetime thing of using just one pay raise to upgrade your lifestyle, it’s a different matter. However, humans have a tendency to keep running on the hedonic treadmill defined by Wikipedia as “the observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes. According to this theory, as a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness.

So, lifestyle inflation could well become a never ending cycle which is clearly a problem.

Induces the paycheck-to-paycheck mindset

A lot of us today are chained to their jobs as they are addicted to the monthly paycheck. This is for the simple reason that the paycheck is fully spent within the month, with no savings and like Pavlov’s dog, we end up looking forward to the next one. One of the major contributors to this mindset is lifestyle inflation. With every paycheck, if you end up finding new ways of spending money, the probability of savings is going to keep shrinking and the chains to the job are just going to get stronger and tighter.

5 ways to avoid lifestyle inflation

Do not fall into the “I Deserve This” trap

As a marketer, when communicating about a product, the idea is to find a gap in the consumers’ life that the product can plug. The communication is supposed to make the consumer feel good and fulfilled. As an erstwhile marketer I should know. However, be aware that it’s a trap! Yes, you deserve to treat yourself on a job well done or a raise much deserved. But does that have to come at the cost of erosion of all the monetary gains that may have come as a result? Not really. Find the balance between trick and treat (See, what I did here 😉 )

Gift all your raise to your future self

Like an addiction, it is a good idea to nip the temptation of lifestyle inflation at the bud. If you have your basics sorted and do not feel the need for any necessity, then as soon as you get a raise, commit the sum in its entirety to your future goals. Choose your future self over material consumption and fleeting joy in the present and plug in all your raise to grow your money over time.

Create a Budget

While I am not someone who identifies herself with a budget, I still do believe in tracking my expenses. When you get a raise, most importantly figure out exactly how much the amount will add up to your kitty every month. You would ideally have an estimation of the expenses that you make every month if you keep a budget or track your expenses. Carefully allocate your new found money to monetary inflation purposes, future self or debt repayment as well as some bit of fun money to ensure indulgence is not ignored completely.

Do not go for the trend of keeping up with the Joneses

When it comes to keeping up with the joneses, it’s like a blackhole. You will be sucked into it with no end in sight. You get yourself a new car far better than the piece of 10 year old scrap your neighbour has been driving and feel pleased at yourself. But soon enough, your neighbour, playing the game himself gets himself a swanky latest model which has you gritting your teeth. What do you think you will do with your next raise? If not another car, you will probably try and outdo your neighbour in some other aspect, however small, just to feed into that need. In short, it is a never ending race with no winners. Let the Joneses be, and focus on taking joy in the smaller things in life rather than depending on material possessions or relative standing post comparison with other members of society.

Gratitude

You might be wondering what does gratitude have to do with lifestyle inflation? I am a firm believer of expressing gratitude for all the things, big or small, that we are blessed with. In my mind, unnecessary lifestyle inflation happens as an attempt to fill a gap in one’s life and often as a result of discontent with one’s current life. Once you start practicing gratitude and expressing all the ways in which you are leading a blessed life, the urge to spend all the money and keep upgrading your lifestyle may never occur to you.

Have you ever indulged in lifestyle inflation and then had to cut it out? Or do you believe lifestyle inflation is a necessary evil which gets an unjustified bad rap? Let me know your thoughts in the comments below.

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