Are you a victim of ‘lifestyle inflation?’ ----- - I find that this article makes a lot of sense as it describes me and my friends when we just started out in our working lives. - does this apply to you? ----- You’ve been working for a certain number of months now and you’ve finally got the promotion and salary increase that you’ve always wanted. Finally, you believe all your money problems will be solved. The extra income will surely pay all your dues and you will be able to cope better. But it doesn’t play out that way. Soon you find that even with your salary increase, you’re still living paycheque to paycheque. If no matter how much you earn, you find yourself at the end of the month wondering where all your money went, you may be a victim of lifestyle inflation. What is it? It starts off simple enough; the moment you have your increased salary in the bank, you decide to opt for a nicer restaurant during lunch over the mamak or stalls you ate at before. You tell yourself it is fine; you’ve worked hard and you’re now earning more. You do this occasionally, believing that the current salary is enough to support this new way of living. First it’s a restaurant, then a new gadget, designer wardrobe and luxury holidays. Before you know it, though you have much more expensive experiences, you’re still broke by the third week of the month. Here’s how lifestyle inflation works; when a person gains more income, he or she unwittingly decides to spend more because there is more to spend: paying for things they wouldn’t usually. You could be blaming the utility bills, your debts or your loans, maybe even the government for your inability to save, when the main reason is that you are spending more the moment you have more money. Keeping up with the Joneses There are a number of reasons for this phenomenon. One of it is the desire to keep up with peers. It can be due to the influence of friends or colleagues, who may prefer to go out and eat at more expensive restaurants, or maybe they wear certain brands or outfits. There’s even the fact that many advertising campaigns are geared toward telling you that your life will only be better if you buy the item or service they are promoting. There is also the feeling of entitlement. You’ve worked hard and believe you should be rewarded accordingly. Splurging over RM300 on clothes or even purchasing the latest games the moment they’re released feels justified because you believe you deserve it for all the hard work you’ve done to get your promotion or pay rise. Whilst there may be no doubt that you are a hard worker deserving a reward for your efforts; it will become a problem if you are essentially robbing your older self of a comfortable retirement or security should anything happen to you. There are some cases where lifestyle inflation is acceptable. You may need to spend more money on clothes in order to be more appropriately dressed at work for your promotion. Or if you have a new baby, the extra income may be a good reason to move out to a bigger house. Hiring some help at home to ensure you have time for the family is also a good reason. All of this is fine – if you can afford it. But remember that every spending decision you make today affects your financial situation tomorrow. Imagine what else you could have done with that money you spent eating at a high end restaurant. You could invest it: expanding your wealth and ensuring a safety financial net in the future when you truly do need the money. How to handle lifestyle inflation Lifestyle inflation doesn’t have to send you to the poorhouse. But we need to be more conscious of it to ensure we still have savings at the end of the day. Here are some ways to start: - Be aware of your spending and figure out what can be scaled down. - Convince yourself of the importance to save and make saving a habit. - Surround yourself with people who respect your money attitudes. Lifestyle inflation can happen to many people who have succumbed to some of the ideas mentioned above. The incorrect belief that not spending the means they aren’t being rewarded for their hard work is flawed. Saving the money will only provide for your own comfort in future and possible hard times ; not anyone else’s.
Posted on: Fri, 04 Oct 2013 00:30:00 +0000
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