What is Lifestyle Inflation?

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By: MJ Gonzales | Executive Chronicles

When you don’t have money to spare, it’s automatic that you see why you need to budget. If you just get promotion and salary increase, then you may not bother with cost cutting. In fact, the idea of “add on” in your lifestyle may look ideal given that your purchasing power increase tremendously.  This change is called lifestyle inflation and it has bad effects if you don’t handle it well.

While there are many contrasting ideas about lifestyle inflation, you have to accept that the cost of living changes constantly. It’s not whether you earn higher or lower than the average ones. You can’t even simply just avoid life changes and ignore technology advancement. That’s not because the society forces you to do it, but that’s the way it is.

When lifestyle inflation happens?  Mostly it is associated with spending activity of individuals who experience transitions. Common examples are college students to employees and employees to entrepreneurs or freelancers. Often for students, it’s okay to dine in canteen and inexpensive eateries. That change when they become employees because they suddenly seek to eat in high-end restaurants.  It also become their spending habit, which they can avoid if they like.

How to handle this?  Ideally, the first thing to do is to become conscious about the changes in your lifestyle. Giving yourself some rewards is not bad. You don’t only work for your future, but also because for your present.  You just have to find balance so you will not go beyond your means.

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The confusing part though is the “add ons” that you inject in your life. Those can make or break your finances in the long run. There’s huge difference between buying a pricey, but high-tech smartphone and changing gadgets often. The latter is a bad spending habit and unnecessary.

Another note is you should be smart where to put your extra money.  You can use it to settle your debts first, create retirement fund, and build a fund for your business.  Remember also that satisfying rewards are not usually material things.