Lifestyle Inflation – The Quiet Money Trap

Wanting to have a better quality of life as income grows is a natural thing. Having a new and better apartment, upgrading your gadgets, travelling and dining out more often are seen as well-deserved rewards after hard work and when your career progresses. Unfortunately, savings and financial goals will quietly stall when your spending rises just as quickly as your income. This is what you call lifestyle inflation.

What is lifestyle inflation?

Lifestyle inflation is the phenomenon wherein you increase your discretionary spending as you increase your earnings. Instead of using their increased earnings to strengthen their financial security, there are people who would expand their current expenses just to match their current income level. Eventually, this leads to a bitter cycle wherein their higher pay does not translate to actual wealth.

Why do people fall victim easily?

People fall prey to lifestyle inflation easily because of advertising, social pressure, and comparison culture. When peers upgrade cars, homes, or travel and buy new stuff, it would feel normal or necessary for them to follow suit. Small recurring purchases and upgrades may seem harmless at first, but eventually they add up significantly in the long run.

Long-term consequences

Indulging yourself in lifestyle inflation would only delay financial progress. Your retirement savings, emergency funds, investment accounts, and the like will not grow or grow slowly. If income drops due to unexpected expenses or job loss, maintaining a high-cost lifestyle becomes difficult.

How to stay in control?

Avoiding lifestyle inflation doesn’t mean avoiding the nice things in life. Instead, it’s best to be intentional and mindful of your expenses. Allocate a portion of your income to savings and investments first before adjusting your spending. Having a prioritised financial goal helps in making sure you don’t fall prey to lifestyle inflation.

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