It’s nice to have a little cash to wave around, especially if that wasn’t always the case. Nevertheless, you really need to rein it in or you’ll end up practicing lifestyle inflation. What’s that? In a nutshell, it dwells on the logic that an increase in income should automatically lead to an increase in spending habits. This is a dangerous ideology that can ruin your financial health and keep you stuck in the rat race of working just to pay the bills.
The thing is, it’s only human nature to want to improve your social and economic standing. However, in today’s society, people have gone beyond being driven by the survival of the fittest, trying to convince themselves that they deserve more than they have or can afford. Psychologists refer to this desire to jump at any opportunity that offers a bigger and more comfortable life as a ‘hedonic treadmill’. If you honestly know you fall into this category, here are 5 ways to combat it.
1. Define Your Idea of Success
In simpler and more common terms, lifestyle inflation is an attempt to keep up with the Joneses. Basically, if you’re living above your means, or trying to show others that you’re better than them, you’re doing it.
If you’re sick and tired of this seemingly endless cycle, the first step is to be aware that your idea of success doesn’t have to be the same as anyone else’s. With this understanding, you should begin to plan your life.
Is your goal to travel more or retire early just like people in the FIRE movement? Having a defined goal gives your money a sense of direction and facilitates deliberate choices when it comes to spending.
2. Pay Off Your Debt
Just because you got a raise should not instantly translate to a new car, yacht, or whatever extra debt you may be thinking of incurring. Think of living with debt as standing on sinking sand because no matter how much you make, it will never seem enough.
The inability to live within your means will not just incur more debts for you but it could also steer you towards illegal ways of making money. If you are already in trouble with the law, reach out to Koenig & Owen for an opportunity to have a fresh start. Once again, make paying off your debt a priority by stepping up in terms of automated payments.
3. Have a Budget
Sticking to a predefined budget is one productive way to combat lifestyle inflation. A good budget should make a provision for rent, car insurance, groceries, and other important liabilities. This way, even when you get a pay raise, you can easily maintain the same lifestyle you have always had because you know all the necessary things that you and your family need to survive on.
Contrary to what many people think, a well-defined budget actually gives you permission to spend as opposed to being restrictive. For the most part, this works when you have a percentage of your income allocated for little pleasures here and there. Let’s say you are tempted to make an unplanned purchase; you can simply turn to your ‘pleasure’ account to confirm if you can afford it and if you can, by all means, treat yourself.
Even more, take advantage of technology by installing a budgeting app you are comfortable with and using it to track your expenses.
4. Be Aware of the Human Psychology Behind Purchases
It is easy to get trapped when trying to define and differentiate your needs from wants. This is especially difficult when you are about to make a purchase. Have you ever wondered why you’re advised not to shop when you’re hungry? For one, you may end up buying something you really don’t need.
This philosophy can also be applied every time you need to make a purchase. Sellers are aware of the psychology behind purchase decisions and they use this to control your thoughts and decisions so, never be in a hurry to make a purchase. Take a day or some time off to really decide if it is something you want or needs. This applies especially if it is an item you never thought of until you saw it through a shop window.
Avoiding lifestyle inflation does not mean you should manage that old rickety car that needs a little push before starting. It simply means living within your means. You can apply the percentage strategy in your budget to safely increase your lifestyle.
In short, simply set a certain percentage of your income aside for savings, debt repayment, and expenses. No matter how much your income increases, this percentage should stay the same because it’ll make your finances a lot more streamlined.
What about you? Do you struggle with lifestyle inflation?