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How To Avoid Lifestyle Inflation?
  • admin
  • October 23, 2024

How To Avoid Lifestyle Inflation?

Lifestyle inflation is a situation in which when an individual's income increases, his tendency to spend also increases. Due to the rise in income, when a person starts spending even on essential things, it has a direct impact on personal finances.

As a result, a situation like a debt cycle may be created. It also affects financial goals. Due to this, people have started living from paycheque to paycheque. In simple words, lifestyle inflation is a situation of poor financial management and lack of self-discipline.

1.  Avoid overconfident financial decisions

A major reason for lifestyle inflation is the increase in income. As soon as your income rises, you become overconfident and start spending more than you should. Therefore, if you want to avoid lifestyle inflation, it is first important that you avoid overconfidence.

If your income has increased, invest it in fulfilling your short-term and long-term financial goals, be it your savings or retirement plan. Spending your income on random luxury items as soon as they increase gives you happiness for some time.

But after some time, it directly affects your personal finances. Due to this, you gradually move towards financial stress. Therefore, it is important to use wisdom when your income increases.

2.  Stop comparing to others

Lifestyle inflation takes its worst form when you start comparing your status with others. If you do not want to fall into such a situation, stop comparing your income with the status of others. Your income is temporary, and you have to fulfil your needs according to your financial needs.

Do not make any financial decisions in your life by comparing it with a status symbol. Every status symbol is like a trend which keeps on changing. The most important thing is to understand that no other person will come to pay the expenses from your income.

Therefore, by getting influenced by the lifestyle of others and spending unnecessarily, you can become a victim of big financial stress. Stop comparing yourself with others today itself.

3.  Make a plan to pay off debts

Make a plan to pay off your debts as soon as possible, whether it is a short-term debt or a long-term debt. Especially those you take during a bad credit situation. For example, if you have taken bad credit loans on guaranteed approval, pay it off faster and improve your credit rating.

 If you have a long-term debt, for example, a mortgage, by making part payments frequently, you can reduce the cost of your loan significantly. Especially in the initial years, interest is charged in the mortgage.

If you make part payments in the beginning, your total cost is reduced significantly. Or, if you have short-term debts, pay them off. If you are facing multiple debts, reduce your debts through debt consolidation.

With debts, you can never live a financially stable life. It also pushes you towards lifestyle inflation. Try not to take any kind of loan unless you actually need it. And get rid of the existing debts by paying them off as soon as possible.

4.  Don’t stop creating a budget

It is not necessary that inflation will end in the world due to your income rise. The price of everything is rising as fast as before. Your purchasing power is high due to your income rise. But you are also spending at the same speed.

You can soon see its direct impact in the form of financial issues. Therefore, it is important that you do not give up the habit of budgeting. People often become overconfident when their incomes rise. They spend a lot of money on it.

After a salary hike, you may also feel that because you are earning more, you can easily spend more. You may feel that you do not need budgeting because of your high income. However, whether it is an individual or a big established business, budgeting is necessary for everyone.

Otherwise, gradually, your expenses start dominating your income. In the budgeting options, if you mostly spend on essential things, you will soon start facing financial difficulties.

5. Think about your spending behaviour

Before spending your money randomly on increasing your income, stop and think. Scrutinize your spending behaviour. Are you really spending wisely? Did you spend money in the same way earlier? The more you program your spending behaviour thoughtfully, the easier you can avoid lifestyle inflation.

Due to comparing it with the status of others, you fail to understand that you have started spending money on unnecessary things. Expensive clothes, cars, furniture, and multiple kitchen appliances all consume your hard-earned money. Most of these things are such that you do not actually need them.

Therefore, after every income rise, definitely see what change has come in your spending behaviour. Here, the skill of budgeting also helps you. It is because, through budgeting, you can clearly see what expenses you have. You will be able to understand which expenses are necessary and which are just the result of your temporary desires.

6.  Keep working on an emergency fund

Due to excessive expenditure, you can spoil the balance between income and expenditure. For this, it is important that the money you stop overspending. Add the money to your emergency fund. This helps you practice self-discipline, and your emergency fund will remain intact.

Due to overconfidence, when the income rises, people stop working on the emergency fund. Also, because they overspend, they come under even bigger financial stress. In such a situation, if you need money for an urgent situation, you have to get help from someone else.

Although affordable loans are available nowadays, but this does not mean that you should not create your emergency fund. No matter how much your income increases, never underestimate the importance of an emergency fund.

Conclusion

Lifestyle inflation is a dangerous thing. If it is not controlled at the right time, it can completely spoil your financial life. You can become a victim of a debt trap, and your short-term and long-term financial planning can also get disturbed. However, these days, borrower-friendly lenders like Mycreditbucks ensure borrower-friendly deals.

If you do not want to get financial stress, always keep lifestyle inflation away from yourself. It is a good thing to reward yourself when your income rises. But overspending is never wise. Therefore, enjoy your income rise by keeping your spending behaviour under control.

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