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 or the tendency to spend more once you earn more.
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 a costlier upkeep and 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 outweighs the additional costs.
However, you have to think long-term. If you’re planning for early retirement or have goals that require a hefty investment, then you should avoid lifestyle inflation. Increasing your income while keeping your expenses low is an efficient way to accelerate your savings and achieve financial wellbeing. Here are tips on maintaining a frugal lifestyle even when earning so much more than before.
To most people, savings are the surplus of income after expenses. The correct way of looking at things is exactly the reverse: set aside money first for your savings then start allocating your budget. Remember, even before getting that pay increase, you were able to live on less.
Sign 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 your future. If you don’t want to put your cash in the bank, you can put it in an investment-linked insurance plan to start building the future you dream about. FWD Life Insurance’s Manifest and Set for Life are insurance plans that protects you and put your money in investments too. Set an appointment with a financial expert by clicking here and learn more options on how you can make your money grow.
Getting a pay increase is an ideal time to reassess your financial goals. 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 areas like allotting more on healthy food.
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. In the interest of sustainability and to avoid burnout, you should allocate funds for the fun stuff too. The tricky part is how to do this without inflating your day-to-day spending too much.
For instance, you may now have a significant 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 installments. You also have to pay for gas, parking and maintenance, among other expenses. There are other ways you can reward yourself. Remember, the best prizes are experiences. You can spend it on travel but make sure there aren’t any other drastic changes to your monthly expenses.
Now that you’re moving up the corporate ladder, you may feel the pressure to upgrade your look, wardrobe and lifestyle to reflect your new job title. But do you really need that new Swiss watch just because everyone in middle management is wearing it? Buy something because you need or love it, not because it’s a status symbol.
You are more than your paycheck. Start nurturing your financial wellbeing today by scheduling a financial assessment with an FWD financial advisor.