Are you a victim of lifestyle inflation? Our 10 (very honest) principles will help you beat the disease
Once upon a time I used to head to the nearest bakery or fruit shop for cheap lunch. A 50c bread roll or banana was sustenance enough to keep me going until I got home to have a decent balanced meal.
Bit by bit over the years my bun and fruit habit evolved into buying $10 packs of sushi when I’m caught short without a packed lunch. Why? Because like virtually every person alive I can fall into ‘lifestyle inflation’. That’s spending increases to fill the income each time I earn more.
It can be very difficult to avoid the lure of sushi, iPhones, dining out, overseas trips and other trappings of wealth as your income grows. You tell yourself: “I deserve it.” But lifestyle inflation is a vortex that sucks up pay rises.
With a bit of personal honesty lifestyle inflation can be deflated:
The symptoms of lifestyle inflation are silent. You don’t realise it’s happening until something dramatic happens in your life such as being made redundant or finding yourself suddenly single and reduced to one income.
People who suffer from lifestyle inflation are often swimming in debt and feel broke, no matter how much they earn. Do you have more trouble making ends meet than others on similar incomes?
Think back to your first job. What do you buy now that would have been a luxury back then? Is that extra spending necessary? Or is it holding you back from your financial goals? If it is, then look for ways to cure the “I want, I want, I want,” disease and don’t know the difference between needs and wants. Really you’re the only person who will suffer from that.
Lifestyle inflation is okay in moderation. Make sure, however, the percentage of your salary dedicated to reducing debt or saving goes up at the same rate as your income.
Question every cent you spend. Have you been brainwashed by marketing departments to spend money unnecessarily or upsize with accessories?
Identify where you succumb to lifestyle inflation and cut some, but not all of the luxuries. Perhaps one pack of sushi a week or a month as a treat.
Use your bonus to buy freedom. How you do that is by paying lump sum windfalls down onto debt or up into your super or other savings.
Downsize your expectations about what you can afford, and what you ‘deserve’. When I downsized on dining out I found that I appreciated the experience more.
Create a spending plan (a budget!). When your pay goes up adjust it to give yourself, say, 10 per cent of the pay rise to spend and the extra goes straight into debt repayment or savings. If you have children, put them on a budget as well. It will help instil good financial values in the next generation that will benefit them for the rest of their lives.
Fighting lifestyle inflation is a lifelong battle. I still fall into it when those urges to buy stuff or treat myself overcome me.
Do reflect on your lifestyle from time to time. A decent dollop of honesty is worth far more than any pay rise. Ask yourself why you ‘need’ or ‘deserve’ XY or Z when you didn’t at age 25 or even 35. That’s a great antidote to lifestyle inflation.