Guilty of Inflation Lifestyle? That's okay!

Many people find themselves in a situation known as lifestyle inflation or lifestyle creep, where expenses rise at the same rate as their income. You get a pay increase, so you reward yourself by purchasing a shiny new vehicle. Lifestyle inflation is often regarded as a bad thing everyone should avoid. It is also known as the "killer of your savings," and it usually has a negative connotation. But is it as horrible as it seems?

In my opinion, lifestyle inflation might be beneficial. Financial independence does not entail perpetuating a lifestyle like that of a broke college student. Instead, it's all about striking a healthy balance between spending and saving.

Is Lifestyle Inflation Always Bad??

What Does Lifestyle Inflation Mean?

The term "lifestyle inflation" refers to the typical occurrence of one's expenditure growing at a faster rate than one's income. This indicates that when one's income rises, so does one's propensity to spend that money. Lifestyle inflation is common after major life changes like getting a new job, getting promoted, or graduating from college.

Many students, for instance, split the cost of groceries among roommates while attending college. As a student, you may have spent around 250-500 sgd a year on food and housing. And for some, they could still reduce this to a more manageable amount sgd 150 by the time during postgraduate study

After finishing school, many people enter the corporate world for a full time position and begin earning a paycheck. Suddenly, you have enough money to live well without scrimping. When you got your first job after college, your monthly expenses have probably? jumped to almost SGD 1,000 and this is what we call lifestyle inflation.

The Risks of Lifestyle inflation

Lifestyle is widely seen as a risky trap. Many people blame it for their precarious financial situations and the fact that they must always prioritize paying bills over getting ready for the future. As a result, getting out of the 9-to-5 job cycle might be more challenging. Indeed, there is some truth to this.

Reduced Potential for Cost Reduction

Lifestyle inflation makes it more difficult to save money because living costs rise alongside income. This is because the beneficiary doesn't have time to put aside any of the windfall before spending it.

If you don't have any savings, you might not be as ready to handle unexpected costs. If you lose your job or get sick unexpectedly, you may find yourself unable to cover even the most fundamental of living costs. It will be considerably more challenging to save for important life events like holidays, weddings, etc.

The loss of interest and compounding interest is one of the major downsides. Savings can expand like a snowball when you take advantage of compound interest, which is interest on interest.

If you don't take advantage of this remarkable perk, saving money will be more of a struggle. Since your savings will have more time to grow thanks to compound interest, that's why starting early in your career is optimal. If you wait to start saving, you'll need to put in more money over time to get the same result.

In what circumstances is lifestyle inflation acceptable?

My 21-year-old self would be startled by the fact that I am not troubled by my increased spending.

When these conditions are met, I will gladly "inflate" my lifestyle:

A better quality of life

I contend that there are some benefits to lifestyle inflation despite its evident drawbacks. In some cases, a higher standard of living can be achieved by increasing spending as income rises.

For instance, having to choose your own place to live. For some, sharing a house with other tenants is a low-cost yet a stressful option. Having housemates who would also get some of your food or have nonstop parties might often leave you exhausted and unable to sleep. With this, you have to deal with difficult landlords and housemates.

It's not always horrible to have roommates, of course. However, they may have harmful effects on emotional well-being and increase stress. Therefore, even if it's more expensive, it's still a good idea to get your own apartment.

You may buy a lot of things that can improve your quality of life, and lodging is just one of them.Food is another thing. I now prioritize spending more on food, particularly on perishable items like fresh vegetables and organic meats and dairy products, and less on inexpensive, nonperishable items like instant ramen. My food costs are substantially greater than they were three years ago, yet I still manage to make them manageable by adhering to a few essential principles.

I used to always book the lowest flight possible when going; now I spend more on flights. Some of my longest flights ever lasted 20 hours with three layovers. But when I started earning money, I realized that I'm prepared to spend extra money in order to maximize my trip's comfort and ease.

Choosing Environmentally Safe Products

More money gives you more options in terms of what you can buy. Some of these alternatives not only improve your lifestyle, but also safeguard the planet. Organic food, for instance, uses fewer pesticides.

Moving away from the topic of food, this might also refer to purchasing a car that is safer on the road and causes less damage to the environment. Another instance is selecting clothing retailers whose products were not manufactured in far-flung nations with unknown or unfavorable labor conditions.

Spending greater money on environmental protection is warranted. When you take care of the earth, you take care of yourself.

Purchasing Whatever that makes you happy

Finally, it's time to give back to yourself and buy things that you deprived yourself of when you're not yet earning a sufficient amount of money. Buying more useless stuff or frivolous spending won't make you happy. There are, however, purchases that can lead to greater happiness and psychological well-being.

For example, donating your money; buying gifts for others, and purchasing experiences like a vacation are frequent ways to make you happy.

Finding Balance

On the one hand, lifestyle inflation is a major contributor to both low savings and high debt levels. Conversely, it may make you happier overall. Therefore, I contend that an increase in the cost of living is not always a bad thing. Instead, focus on maintaining a level of living standards below your means since more expenditures would not add value to your life.

Finding the optimal expenditure level, or the lifestyle inflation balancing point, as some have dubbed it, can be challenging and may vary from person to person. Furthermore, the level of spending is expected to rise over time due to inflation or shifts in circumstances. Having children, for instance, will cause a person to spend more money than if they had no children.

Summary

I've been indulging in a bloated lifestyle...but that's fine with me.

My spending has grown over the years, but it has only grown in the areas that truly matter to me. Despite my higher outgoings, I am still putting away and investing a lot more money than I was 3 years ago, and I am well on my way to achieving all of my financial goals.

It's natural to desire to improve your lifestyle when your income rises. I don't see any problem with a small bit of lifestyle inflation provided that you make deliberate and well-considered ways on how to allocate your newfound wealth and maintain the discipline to rein in your spending if required.