Money and insurance

How to Avoid Lifestyle Inflation

Living below your means is necessary to develop your financial wellbeing . You don’t have to live paycheck to paycheck if you know how to live below your means. Spending less than what you earn is a great technique to achieve your financial goals . Here are tips on maintaining a frugal lifestyle, even if you are earning so much more.

By Redi Mendoza

Did you finally get that raise you worked so hard for? It's easy to believe you can spend more, now that you're earning more. An upgraded salary means an upgraded lifestyle, too, right? Enter lifestyle inflation. It is a common trap people fall into once their purchasing power increases.

Spending more is not intrinsically bad. If you follow the rule of transitivity, then it's perfectly logical. For example, investing in a bigger home will come with higher upkeep, but the lifestyle upgrade might be necessary to meet the needs of your growing family. In this case, lifestyle inflation benefits your family's wellbeing and outweigh the additional costs.

However, you have to think long-term. If you’re planning for early retirement or have goals that will require a hefty investment, then you should avoid lifestyle inflation. Increasing your income while keeping your expenses at bay is an efficient way to accelerate your savings. Here are some tips on how to avoid overspending and be on your way to achieving financial wellbeing.

Save first.

To most people, savings is the surplus of income after expenses. However, to prevent you from overspending, set aside money for your savings first. It should be the priority when you're allocating your budget. Remember, even before getting that pay increase, you were able to live on less. Try signing up for auto-transfers from your payroll account to your savings account every payday to make savings easier. You don't even have to think about it.

You can also plan for rainy days. If you don't want to put your cash in the bank, you can put it in insurance. One of the costliest expenses you can have in your lifetime is an attack on your health, be it physical, mental, or financial. However, you can plan for it. Beat "surprise" circumstances by investing in plans that can take care of your holistic health.

FWD has a catalog of health insurance plan options that’ll guarantee you the joy of wellbeing like and . You can even boost your plan with add-ons. RecoveryPro, for instance, gives you cash allowance for hospitalization, including Covid19-related confinement.

Create a feasible budget.

Getting a pay increase is an ideal time to reassess your financial goals and aims. If you don’t have a budget, this is the best time to create one. Avoid going on a shopping spree to celebrate. Instead, focus on your new spending strategy. You may increase spending in some aspects of your budget, like allotting more on healthy food (now that you can afford more than instant noodles). However, make sure that the additional change is gradual so that you can assess how much more you need to spend on those.

Reward yourself—sparingly.

If you put every centavo of your pay raise into savings, you may feel that you’re not enjoying the money you broke your back for. So, in the interest of sustainability and to avoid burnout, you should wisely allocate funds for the fun stuff. The tricky part is how to do this without inflating your day-to-day spending—too much. For example, you may now have some extra cash to get a new car. Before you do that, however, do your research first. The cost of owning a new vehicle is not just limited to your monthly installment. You also have to pay for gas, parking, and maintenance, among other expenses.

If you already have a car, just trade it in for an upgrade instead of maintaining two vehicles. There are also other ways you can reward yourself for all those late nights and overtime. Remember, the best prizes are experiences. You can spend it on a nice, quick, and affordable holiday. If you make sure to “reward yourself” only once in a while, there shouldn’t be any drastic changes to your monthly expenses.

Don’t try to keep up with the Joneses.

Now that you’re moving up the corporate ladder, you may feel the pressure to upgrade your look, wardrobe, and lifestyle to reflect your spanking new job title. But do you really need that new Swiss watch just because everyone in middle management is wearing it? Buy it because you love horology or that piece moves your emotions, but don’t purchase one because it’s a status symbol. Buying things you don’t need is one of the fastest ways to inflate your lifestyle. Let your work, and not the fancy things you own, speak for your success. Remember, you are more than your paycheck.

Start nurturing your financial wellbeing today! To schedule a financial assessment session and know what you need now at this stage in your life, click here.

Financial wellbeing is just one of the four factors of total wellbeing. For more info on how to start living the joy of total wellbeing, go here.