What would be the first thing you will want to do when your salary increases? Upgrade your lifestyle, right? This is one of the obvious things that come to mind for most people. Because the increase in salary will make people shop more or rent a bigger house. But you may not know this but you can spend the raise in your salary more wisely than this. As your income grows if your spending also increases then it is called lifestyle inflation. Most people think that they can notice in case such a thing happens. However, it is far from the truth. This is not the case, it happens so slowly that before you notice the difference, your raise will be gone in shopping or other expenses.
Let’s discuss this with an example, you got a raise at your work. You’re excited that they can now get yourself a new car. You paid for the downpayment and got a new car. Before you know it, all the raise will go to pay the installments of your car. You see the increase in salary will inevitably bring new expenses and you will suddenly remember the items you want to buy. Simply put, with an increase in salary your freedom to buy things will make you want to buy all the things you have suppressed to buy. But the downside of this is that when you fall to the lifestyle inflation you may end meeting needs but will never be able to save a good amount of money.
Why is it important to save money? The answer to this is better life choices. Yup, when you save money rather than spending them you can have the capacity to make better decisions that will reflect positively on you and your family.
Ways to avoid lifestyle inflation
You must be wondering if there is any way to avoid lifestyle inflation, yup there is, stick till the end to find out.
Your salary will grow as your career grows. Over the years you will come to see different methods on how people save their money. Eventually, you will be able to find the right footing. But one thing that is important is that you must have a working strategy that will help you. Implement these strategies to keep your lifestyle inflation and spending as a minimum.
Evaluate your life
When you have more money naturally you would want to fulfill all the dreams that you have been putting on hold. Definitely this is not a bad thing. But it may necessarily not be a good thing too. See if your living from paycheck to paycheck you will never be able to save for long term goals. So if you don’t want to end up regretting spending all your money in the future then you must make a decision now. So to understand your financial health better, it is important to observe your spending patterns.
It is good if you have been doing that. However, if you didn’t then sit down and note every single expense and income you get. This way you will be able to evaluate your finances and then you will have a better understanding of where you’re making unnecessary expenses and where you should tighten your belt a little bit.
Come up with a plan
Once you have a better understanding of your finances you know what is possible and not possible with your finances. So come up with a plan that works well for you and stick to it. See the best thing is to determine your short term or long term goals. Whenever you have an end goal, you will become more serious and you will stick to your decision. It will also help you in resisting lifestyle inflation. So sit down and first note down the goals you want to achieve, it can even be saving for your retirement. Just make sure that your goal is realistic and definitely come up with the time period you want to achieve it in. If there is no time period for your goal you will lose your motivation quickly. So fix a time period. And save towards one short and one long term goal.
Put your raise into retirements or savings
Whenever you receive a raise in your salary make sure you put all of it or most of it into the savings or retirement account. This is the perfect way to stop giving it into your temptation to spend. One of the most common traits of humans is that whenever they know that they have money in their accounts they will end up spending within that limit. So make sure that you maintain the same amount as before you have received the raise.
You can still maintain your old lifestyle and save up all the extra money you have. Maintain a separate account for your savings and spending. It is better this way because you will know how much you’re spending. You can also save the difference between your previous and present paycheck and put all of it into a retirement account. So that you are better prepared for your future. There are different retirement plans you can invest in. Check all the available plans before making a decision.
Have a good support system
It is better to include a Certified Financial Planner in your financial mix. Wondering why? Because they understand your financial health and your goals better. So they will come up with a perfect strategy to save enough money to reach your goal. Also along with a CFP include your spouse or a friend with whom you can share your financial journey. Whenever encouraged you will work better. Also, another important thing is to stop comparing yourself with other people. See no two people spending patterns will be the same even if they are earning the same amount. Rather than focusing on another bank account, focus on yours to attain a brighter future.
Problems always come uninvited, they pay you to visit when you’re least expecting. So it is better to financially be prepared to handle such situations. When you get a raise instead of spending more, come up with a plan to become more financially secure, and lead a better life.