How to Avoid Lifestyle Inflation

Living below your means is necessary to gain financial freedom. You don’t have to keep living from one paycheck to another if you live below your means. Spending less than what you earn is a great technique to achieve your financial goals. Here are tips on how to maintain a frugal lifestyle, even if you’re earning a lot more now.

by Redi Mendoza, 15 September 2017

Avoid lifestyle inflation to accelerate achieving your financial goals.

Finally got that raise you’ve worked hard for? You might think that since you’re earning  more money now, you could afford spending more on yourself and upgrading your lifestyle. This is how lifestyle inflation begins—spending more as your income increases. It’s not intrinsically bad. Investing in a a bigger home will come with a higher upkeep, but the lifestyle upgrade might be necessary to meet the needs of your growing family. In this case, the lifestyle inflation will be beneficial to your family well-being and might outweigh the costs. But if you’re planning for an early retirement or have goals that will require a hefty investment, lifestyle inflation should be avoided. This is because increasing your income while keeping your expenses at bay is a good way to accelerate  your savings. Here are some tips on how to avoid it and be on your way to financial freedom.

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, before you budget for your expenses. You may think that this is next to impossible but if you think about it, it shouldn’t be. Even before getting that pay increase, you were able to live on less. We recommend having auto-transfers from your payroll account to your savings account every payday to make savings easier.

Allocate Funds
Getting a pay increase is a good time to reassess your financial goals and budget. 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 spending more on healthy food (now that you can afford more than instant noodles). But make sure that the additional change is gradual so that you can assess how much more you really 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 worked hard for. So, it’s also wise to 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, but before you do that, 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 without spending too much. Remember, the best rewards are experiences. You can spend it on a nice, quick affordable holiday. If you make sure to “reward yourself” only once in awhile, 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.