- Date : 20/12/2021
- Read: 3 mins
Lifestyle inflation can be bad, and it can be good as well. Find out when and how to avoid it as well as embrace it.
While most of you must be familiar with the term ‘inflation', lifestyle inflation is another ballgame altogether. Do you know what it is?
In simple terms, lifestyle inflation is when you increase your lifestyle expenses when you get an income bump. So, as your income increases, so do your expenses. This is what lifestyle inflation is all about.
Lifestyle inflation can happen for any of the following reasons:
- Increase in your standard of living
- Splurging on your whims and desires
- Increase in the monthly budget
- Increased lifestyle spending, etc.
Lifestyle inflation is usually considered bad because even after an income hike, you don’t have enough savings since your expenses have increased. On the other hand, in some cases, embracing lifestyle inflation can be good.
So the question arises: when should you avoid lifestyle inflation, and when should you embrace it?
Let’s find out!
Lifestyle inflation is best avoided when you want to go on a shopping spree or when you want to increase your lifestyle expenses on dining out or entertainment. Once-in-a-while overspending can be justified but do not make it a habit. Instead of spending away from your increased income, you should actually save it for important financial needs.
Similarly, buying an expensive mobile phone or gadget or splurging on luxuries should be a strict no-no. If you are eyeing big-ticket purchases, saving money for them is the better alternative.
Lifestyle inflation is not at all bad when you can make your money work for you. And how do you do that? Here are some tips:
Reduce your debts
Use your increased income to step up your loan EMIs so that you can get rid of debts faster. Debts incur an interest expense, and if you reduce them, you reduce the interest that goes out too. This helps you save money and also improve your credit score.
Improve your lifestyle
If your limited income is making you live miserly, you should go for lifestyle inflation and improve your standard of living. Live comfortably. After all, it’s your money!
Take a vacation
You can use your increased income to take a vacation that you have been meaning to go on for some time. Go on a trip and rejuvenate yourself. This would also boost your productivity and might help you work better for another raise.
Step up your investments
Lastly, when you use the extra money to step up your investments, you ultimately gain in the long run. Start your retirement plan or supplement an existing one with your additional income. Invest in building wealth for your financial goals and see them fulfilled easily.
To say that lifestyle inflation is a bad thing would be wrong. It has its pros and cons. Indulge in some wealth management and learn when to avoid this inflation and when to embrace it for a financially rewarding life.