Lifestyle Inflation: The Normalised Killer of Wealth

When it comes to squandering your path to wealth, there's no quicker way to do this than falling for the trap of Lifestyle Inflation.

For those who aren’t familiar with this term, lifestyle inflation is where your expenses are constantly growing as your income grows. For example you get a pay rise and suddenly you feel entitled to spend that extra amount on upgrading your car, phone or apartment.

Many of us go through this when we start our first full-time job. With that first 'adult paycheck,' it's normal to see your expenses go up. Maybe you finally move out of your parents' house or start shopping where you've always wanted to. We work to give ourselves a better standard of living and I believe my money is meant to be enjoyed. When I moved to Dubai, my pay went up, and so did my expenses because, for the first time, I had to leave my family home.

Spending your money isn’t the problem; it’s the mindset and the poor habits that you build.

In my pursuit of financial freedom, one of the things I pay close attention to is what the mass are doing because that’s often an indication of what I need to avoid and the normalisation of lifestyle inflation is no different. Ideally, when you get a raise or any additional income, you want to use that extra money to build up your net worth — paying off debt or saving and investing. If your expenses keep growing with your income, you’ll be unable do this at the rate that you should. This is why even people with high salaries -earning six figures plus, still live paycheck to paycheck because their expenses are always catching up with their income.

A major cause of lifestyle inflation for many is the desire to prove something, whether to others or themselves. Consequently, they spend their money on signaling status or a misleading sense of 'feeling good.' What's intriguing is that people often aim to project a level of status beyond their actual standing. They’ll drive an Executive Director suited car, on an Associates paycheck.

Now, you might wonder, "If I'm already saving and investing some of my income, can't I spend the extra on myself?" Well, yes, it's your money, you set your own goals and tbh you don’t have to save everything. However, if you have extra income and don't need it for basic necessities, using some portion to build your wealth is a good allocation of that money because the amounts we save and invest in our 20s and 30s are almost more valuable than what we could invest later because of compound interest. You'll have a longer investment horizon hence the earlier you start investing, the more time your money has to grow through compounding returns. Also as people get older, lifestyle inflation tends to be harder to avoid because of more serious expenses like childcare.

Here are some signs that you might be falling into the lifestyle inflation trap:

• Your income has gone up, but you don't see more money left in your account
• You feel the need to buy something new every time unexpected money comes in or your income increases
• You tie your worth to what other people think of you and you like to seek status through things
• You try to buy happiness
• You have a decent income but still struggle to pay off debt and save

???Must Watch (3 minutes)

Lifestyle Inflation in 4k - https://www.tiktok.com/@tiarramur/video/7283605925355703594

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Atomic Habits - https://amzn.eu/d/gJ7Wp3H

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