A phenomenon that affects everyone over the course of their lives — whether they know it or not — is lifestyle inflation. Try thinking back to when you were a kid and you got that first job. Whether it was babysitting or mowing lawns, you started earning some money, so you started to spend it.
As you got older and got more income, your spending continued to increase. This is completely normal and is also the exact way everyone has participated in lifestyle inflation.
The term basically means that, as you earn more money, you spend more money. You don’t even notice it because you’re earning the money you need for the expenses you have. However, it’s important to become aware of how lifestyle inflation affects your life because it can cause you to form unnecessary spending habits that eat away at your savings.
Know Your Budget
Everyone has their own way to make a budget, but budgeting works a bit differently when considering lifestyle inflation. With pay raises, taxes also increase, so one of the main ways lifestyle inflation will hurt you is when you don’t take taxes into account before you budget.
Take some time to make a budget that’s formed after you take taxes out of your new paycheck. Once you get a better idea of what your spending money actually is, make sure it doesn’t all go on your credit card. If you spend more than 35% above your credit limits, you’ll hurt your credit score.
Having a poor credit score will make the time you took to make a great budget seem like a waste, so plan out how you’ll spend the money you plan to use.
Set Some Goals
Once you have a set budget for necessities like food, gas and rent, you’ll need to set some goals for yourself for the near and distant future. These goals don’t have to be from a standard list. Do you want to buy a car with cash? Retire early? Move into a nice home when you retire that won’t come with a mortgage?
Write your goals somewhere that you’ll remember them. These will be an important motivator to keep you on track with your budget. Eating rice and beans for dinner every night will get old, and you’ll be tempted to increase your spending, but when you’re able to picture your goals, you won’t feel the need to get anxious. Your budget will expand with time.
Stick to Those Goals
Some people are great about making goals and sticking to them because the idea of goals may be all they need to get going. Others have a harder time with personal accountability. If you fall into this category, don’t be discouraged. Lots of people need partners to stick with a budget.
Having someone to lean on will provide you support and encouragement when you need it the most. Sometimes most importantly, your partner will listen when you need to vent about your financial frustrations. No one will judge you for needing some help, and your partner is in the same boat as you.
Be proud to have worked so hard that you’ve earned paychecks and raises, and celebrate your accomplishments. Sometimes, it doesn’t hurt to go out for a nice dinner or get that new couch you’ve had your eye on. However, when that celebration crosses into spending habits that don’t actually mean anything to you, lifestyle inflation can be hurt you in the long run.
Figure out your goals by starting with what you have, and you’ll be on the way to financial stability while also living a comfortable lifestyle. The sooner you start evaluating your purchases, the sooner you’ll feel financially secure. And that’s something you can take to the bank.