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Lifestyle Inflation

Summary

1 What’s Lifestyle Inflation?1.1 KEY TAKEAWAYS1.2 Recognizing Lifestyle Inflation1.3 An Illustration of Lifestyle Inflation1.4 Strategies for Preventing Lifestyle Inflation1.5 Calculate Actual Changes to Budget1.6 Value Experiences Over Things1.7 Make Gradual Changes What’s Lifestyle Inflation? Lifestyle inflation refers to an increase […]

What’s Lifestyle Inflation?

Lifestyle inflation refers to an increase in spending when an individual’s income goes up. Lifestyle inflation will become greater whenever an individual receives a raise and can make it tough to escape debt, save for retirement, or fulfill other big-picture financial targets. Lifestyle inflation is what causes people to get stuck in a cycle of living paycheck to paycheck where they have only enough cash to pay the bills each month.

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KEY TAKEAWAYS

  • Lifestyle inflation refers to a scenario where an individual’s income increases and their spending also increases.
  • Common events which could trigger lifestyle inflation are graduation from school, a job promotion, or a substantial raise.
  • Lifestyle inflation may lead to situations where folks place great emphasis on the purchase of items to be able to achieve happiness.
  • Strategies to prevent lifestyle inflation include prioritizing financial independence and valuing experience within the purchase of objects.

Recognizing Lifestyle Inflation

1 instance where lifestyle inflation typically happens is the transition from being a student to being a full-time worker. Despite living on very little money for a student, after a first paycheck arrives, things which were formerly”luxuries” can easily become”necessities,” leading to increased spending.

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Sharing a two-bedroom flat with three other roommates to maintain housing and utility expenses down suddenly seems less appealing. Someone experiencing lifestyle inflation may go out and rent a one-bedroom apartment where they can live independently.

An Illustration of Lifestyle Inflation

After graduating from school, Gal found employment in a bank in new york. In college, Gal worked odd jobs as a waitress and a librarian to be able to make ends meet. She shared a three-bedroom apartment off-campus with two additional pupils. She subsisted on sandwiches and ramen while balancing faculty and work demands.

After she got a job, Gal moved into a studio apartment in nyc. She adopted a pet and joined a boutique gym. One of her extravagances was eating out at each the Michelin-starred restaurants in nyc.

Although Gal was undergoing lifestyle inflation, Gal was also wise enough to set aside a portion of her earnings in a savings account. She also invested in a Roth IRA to reduce lifestyle inflation from controlling the state of her finances.

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Strategies for Preventing Lifestyle Inflation

Lifestyle inflation causes many individuals to live paycheck to paycheck, make the minimum payments on their credit cards, and lack money resources to fall back on if an unforeseen setback like a medical bill or job loss occurs.

People today have a tendency to increase their spending when their income increases because they think that the extra goods and services they are now able to purchase will make them happier. Often those purchases do not really make them happier. A better choice is to work toward financial independence by saving more.

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It’s possible to prevent lifestyle inflation by knowingly establishing saving and spending amounts. Setting up an automated savings plan may be a fantastic way to make certain that savings goals are met and spending is capped. Avoiding lifestyle inflation may mean attaining financial independence at a younger age, having the financial flexibility to decide on a dream job on a higher-paying choice, and retiring early. Below are additional strategies.

Calculate Actual Changes to Budget

After expenses and taxes, the net effect of a raise is often less important than it appears. Take some time to calculate the true change to your budget and determine how that excess money will impact you.

Value Experiences Over Things

If you start earning more money, rather than getting a new car, a home, or a costly wardrobe, consider investing in adventures. Going on a holiday or registering for an educational course can create memories that provide you lasting satisfaction.

Make Gradual Changes

A costly car might call for a pricier mechanic, and a huge house requires more maintenance. Don’t make enormous changes to your lifestyle in the first couple of weeks; rather, celebrate .

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