How to Manage the Creeping Costs of Lifestyle Inflation

How to Manage the Creeping Costs of Lifestyle Inflation

Did you use to make your coffees at home, but now find yourself buying more and more takeaway coffees? It is pretty easy to find yourself stuck in a web of overspending and lifestyle inflation, but how does it happen in the first place?

What is Lifestyle Inflation?

Lifestyle inflation or ‘lifestyle creep’ as some like to call it, occurs when spending gradually increases over the course of time because of your own income growth. Lifestyle inflation typically grows with each raise or bonus. As a result of a growing income, starting with simple changes to your spending behaviour, you can soon find yourself with a lifestyle that is difficult to afford, leaving you with perhaps just enough to pay the bills each pay day, and no extra to contribute towards your big financial goals.

You may have enjoyed a pay rise or a bonus and quite soon you realise that you have adjusted your spending to match your new wage. This feels reasonable, after all, you have worked hard and earned the income you make, so why shouldn’t you enjoy it?

The truth is, most likely you have indeed earned financial freedom through your own hard work. Financial freedom cannot be found through an extra meal out each week, or an exciting new ride, however. Crowding out and putting on hold your long-term goals with extra and often unnecessary spending will ultimately hinder achieving what really matters, extra time with family, travel, or perhaps paying off your debt for good. To live financially free, it is necessary to do without the excess for a while so that all your effort towards your savings can literally begin to pay off.

Now that we have established what Lifestyle Inflation looks like and how easy it is to fall into the trap of ‘Keeping up with the Joneses’, it is important to establish steps to safeguard your cash and keep your financial goals more of an achievable reality than a far off dream.

Staying Away From Lifestyle Inflation

Stay aware of your spending to reduce lifestyle inflation

Understand that lifestyle inflation is a real thing and quite a big issue these days. It not only will derail your dreams if you let it, but it can potentially get you into a heap of financial trouble if you fail to take it seriously. Make choices based on your conscious effort to avoid this trap. Is the purchase you are about to make necessary or important to you? Or is it just another lifestyle creep offender?

Reassess your budget with every raise and bonus

Take the time to rework your budget with every change to your income, no matter how big or small. You may even notice that some small raises should not necessarily give you much extra for spending when you look at the incremental regular amounts paid to you. Resist the urge to upgrade areas of your life each time you get a raise. Think carefully about what types of ‘upgrades’ might be meaningful and necessary before you make it.

Set aside some splurge cash

It is your money that you are spending. With that in mind, you should always feel free to spend money on what you find important, valuable and necessary. Budget out some cash from your income to dedicate to your very own fun money. Be reasonable and determine how much you can really afford to have fun with while still achieving your long term goals. Once that splurge money is allocated though, enjoy it.

Forget about ‘Keeping Up With the Joneses’

Instead, be real and honest with your friends and family. Perhaps share your financial goals with them and instead of trying to keep up with their lifestyle, you might inspire those around you to be dream big and save hard too. Maybe suggest a picnic in the park, or dinner at home instead of a big night out. It can be daunting to be different when it comes to lifestyle, but you may gain respect from those who care about you when they realise your objectives. Run your own race.

Make your savings automated to reduce lifestyle inflation

It is a lot easier to make one big decision to save regularly and ‘set and forget’ your savings to be regularly set aside. Speak to your financial planner about different ways to do this, depending on your situation this could mean putting money into shares, paying extra onto your mortgage or super, or even just putting some cash aside in a different account for now. Whatever you choose, make it automatic and just adjust each time you change your budget.

Run from debt

Beyond a home loan, there is not really any debt that is worth going near. If you are using debt to service your lifestyle in some way, then you know you have a problem that you need to fix. Thankfully once you are aware that debt is a ‘no go’, then climbing out of it is always possible. Speak to your financial planner to see how you can potentially consolidate your debt and adjust your budget to pay it off fast and for good, leaving you room to dream again.

 

It is so common and natural to slip into the trap of lifestyle creep. Even though most people have fallen for it, most people fail to realise how achievable it can be to avoid it and focus on big picture goals as a result. Staying away from lifestyle inflation can also safeguard you from being caught out by unforeseen events, whether it is your car needing to be fixed or needing to pay for urgent medical care. Nothing makes you feel more financially wealthy than being prepared for life’s unexpected moments. Short term lifestyle trappings are tempting, but once you have experienced financial freedom and stability, you’ll begin to see how money can be used for what is important and what makes you truly happy in life. Wouldn’t it be nice to control your money, rather than let it keep controlling you?

Speak to your financial planner today to tailor a strategy based on your individual situation, lifestyle and goals for the future, to take a step towards feeling confident that you are financially headed in the right direction.

For expert financial advice from an award winning team get in contact with Elliot Watson Financial Planning 02 4038 1623.

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd ABN 70 610 168 646 is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

 

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