Imagine you’ve finally gotten a great promotion that you’ve been working toward for months. You get a big raise and decide to treat your family and friends to dinner at a five-star restaurant to celebrate. You find that you enjoyed the restaurant so much, you decide to dine out several times a month. You also decide to get an expensive new wardrobe so you can look the part at work. Over time, the raise allows you to justify spending more money. Finally, the extra income is just a memory, and you’re even thinking about getting a side hustle to break even. You have just experienced lifestyle creep.
What Is Lifestyle Inflation?
This financial problem happens when your standard of living goes up with your income. The reason so many people fall into this problem is because it doesn’t happen overnight. When you get a raise, you might find that your standard of living also rises. The cycle repeats itself when you work hard for another raise to pay for everything. Luckily, you can avoid this pitfall by being more mindful.
Save Whenever Possible
If you get “extra” money, such as a tax refund, inheritance, or bonus, don’t spend it. Instead, make yourself place most of it in your savings account. You’re investing in your future by doing this. If you have debt, make a point of repaying it as quickly as possible. You can save more each month on interest costs by refinancing student loans, which can free up extra cash with a lower rate. Then you can focus on paying off the loans with the highest interest rates first. The money you were paying toward your debt can now be invested or placed in a savings account. One of the most important money saving tips is to set aside more when you get a raise. Your contributions to savings should go up proportionally to your income. Think about creating an automatic withdrawal from your checking to your savings account so you don’t forget.
Budget for Larger Expenses
Just because you have a starter home for now doesn’t mean you have to upgrade as soon as you get more income. Instead, save up for larger costs. Focus on improving your current home over time. That way, you can avoid going into debt for something you don’t necessarily need.
Don’t Compare to Others – But Do Indulge Occasionally
You may have heard the expression about “keeping up with the Joneses.” This means that someone is trying to keep up a certain financial status that they might not be able to afford. Instead of going out and buying a new car like your neighbor, try consistent saving and spending below your means. But don’t restrict your spending so much that you never treat yourself or your family. If you never go on vacation or get something you really want, you’ll quickly become discouraged with your savings goals. You might end up going out and spending more money. The trick is to indulge in something valuable to you instead of something fleeting. That might be a home improvement or making memories with your family or friends.