Most people consider a promotion or salary increase a big accomplishment at work. While these achievements allow you to upgrade your lifestyle, you may also need to increase your spending. As a result, you may become a victim of lifestyle inflation.
What is lifestyle inflation?
Lifestyle inflation refers to a person’s increased spending after their income has gone up. The more times you gain a significant raise, the more likely you will shift to more financially demanding lifestyle habits. In most cases, the cycle continues until you start living from paycheck to paycheck.
People stuck in this loop can face financial difficulties later in life as they will generally only have enough money to scrape by. Experiencing the effects of lifestyle inflation can also make it more challenging to get out of debt or save for big financial goals like buying a house or saving for retirement.
5 Best Tips and Tricks to Being Financially Responsible and Avoid Lifestyle Inflation
Money is crucial since most people can only earn and save a limited amount. Even as you work up the ranks and earn more in the future, it is always a good idea to manage your finances wisely. To help you avoid lifestyle inflation, here are some tips and tricks you can use.
- Find beauty in second-hand shops
Just because you can afford expensive products and services does not always mean you need to put your money into them. Shopping for second-hand items can be a good sustainable alternative where you can reuse and repurpose things to what you need.
- Be smart with your investments
People who earn more usually rush to buy a house or a car but do not often maintain the upkeep. Before you make a major investment, consider how you will manage your finances in the long run.
You need to consider factors like if you need to take out a loan, how much you will pay in interest, and more.
- Never try to be someone you are not
When you get promoted at work or get a raise, you may feel socially pressured to upgrade your lifestyle to match your new title. While it can reflect your status, it is not always necessary. Instead, it is better to consider improving your needs before focusing on your wants.
- Build and stick to a savings plan
Building and following a savings plan is one of the best ways to gain good financial habits. It lets you know if you are spending wisely and making smart choices to lessen your expenses, reduce monthly bills, manage and reduce your debt, and more.
- Do not forget to reward yourself
When you focus too much on saving, you may feel dissatisfied with the money you have worked hard to earn and feel burnt out. To avoid this issue, treat yourself to something nice now and then. You can plan out wise rewards to treat yourself on special occasions so you can stay motivated with your goal.
Manage Your Lifestyle Within Your Means
Getting a promotion or a raise can feel like a big reward after working so hard to earn it. However, you can get held up in the excitement and spend more money than you should. As a result, you may get trapped in a cycle of lifestyle inflation which can make things more financially challenging in the future.
While earning more than you need is a privilege, it is imperative never to get too greedy. Instead, focus on saving for future investments that can benefit you in the long run. Doing so will not only help you maintain your finances more wisely, but it will also develop the habits you need to grow your wealth.
Mira is the Digital Marketing Head of RCBC Credit Card, a Card Servicing entity of Rizal Commercial Banking Corporation (RCBC). With her passion for turning creative ideas into effective campaigns, she leads the development of all digital marketing programs of RCBC Credit Card. Outside work, she expresses her creativity through photography and writing.