If we’re lucky, from the time we join the workforce until the time we retire, our income increases. With that comes lifestyle inflation. It’s only natural at first that people will want to move out of their post-college studio apartment, sell their used car, invest in a better wardrobe and take vacations to Europe instead of a drive to the Jersey Shore.
However, this “lifestyle inflation” can involve unnecessary spending and potentially send you into debt. If you have a setback like a job loss or lengthy illness, that debt can spiral out of control.
Even though it’s tempting to treat yourself and your family when you get that raise or promotion, by remembering a few important things and doing some planning, you can curb that lifestyle inflation.
When you get a raise, determine how much extra money that really means for you. After taxes, it may not be as great as it sounds. Once you know how much extra take-home pay you’ll actually be receiving, you’ll have a more realistic view of how much your income will actually change.
Don’t automatically plan for what you can buy with the extra money. First determine if you need to pay down or pay off some credit cards? Do you need to start putting away money for your children’s education? Often, the best way to save is to increase the amount that automatically goes into your 401(k) or have the additional funds deposited into a savings account rather than your checking. That way you never see it, but it’s still there and working for you.
Your lifestyle doesn’t have to change drastically as you become better off financially. That goes for the company you keep. If you have friends and acquaintances with expensive tastes, you’re likely to feel the need to keep up with them. Expensive dinners, vacations, cars and country club memberships can add up fast. If you spend time with people who have roughly the same budget as you and value experiences over material things, you’re less likely to feel tempted to live beyond your means.
By having clear financial goals and a plan for achieving them, you can avoid the problems that lifestyle inflation can bring. If you’re already in debt and not sure how to deal with it, the sooner you get help, the better off you’ll be.
Source: Money Crashers, “9 Ways to Avoid Lifestyle Inflation – Spending Less When You Earn More,” Jacqueline Curtis, accessed Sep. 29, 2017