Six Ways to Avoid Lifestyle Inflation

An increase in income is something we get excited about, but it also brings the desire to have more in life. When your spending rises as your income grows, this is termed lifestyle inflation.

It’s easy to get caught up in lifestyle inflation, especially when you can justify the desire for a car upgrade, designer handbag and luxury treatments with your new income raise.

The truth is, if you’re spending all the extra money you’re making, it’s nearly impossible to get ahead or be able to plan for your financial future no matter how much income you bring in.

So how do you know you’re being affected by lifestyle inflation? Let’s take for instance, you earned N150,000 per month in your first job. After a few years, you got a new job and you are now earning N250,000 per month. Now that your income has increased, you decide it's time to get a new car or move to a better apartment or get a new phone or go on vacation. Once you get it, you feel more confident, but that’s just all as your savings or investment are not increasing.

There's nothing wrong with rewarding yourself when you get a promotion at work or when you reach a certain milestone. In fact, it's healthy to choose specific categories of your life to splurge on as long as they align with your values and available budget.

But what's challenging about lifestyle inflation is that it can cause you to fall into debt if you do not budget or incorporate it into your financial plan. This makes it difficult to save for future goals like starting a family, travelling or retirement.

How do you avoid lifestyle inflation pitfalls?

Track your spending

First, take a close look at your spending patterns and figure out where your money is going. Are there any areas where you can cut back and adjust? If you spend too much money on asoebi, then you might have to cut that down, or if you spend too much money eating out, you may consider cooking in bulk. Getting back on track isn't about giving up everything that makes you happy. It's about increasing awareness around your spending and deciding what your financial priorities are.

Create a budget

Next is to create or revisit your budget. Budgeting will help you keep track of your income and expenses so you can make sure you're spending within your means. To get a handle on all your spendings, start by listing all your income sources as well as your expenses. Does your total income cover your total expenses with extra money to spare? Or do you need balancing between what you earn and what you spend?

Set aside a percentage of your income for splurging

If you get a raise, decide how much you are willing to spend on “fun.” This will allow you to give yourself that good treatment, luxurious lifestyle and vacation. So if you want the luxurious vibe, then budget for it. Also, be honest with yourself and weigh the impact of the amount you plan to spend on your long-term financial plan.?

Build your savings by automating it

Automating your savings is the easiest way to save. With that, you won’t have to make the decision to save on a regular basis. Instead, instant transfers are set up to recur right after you get paid, so a portion of your earnings can go into your savings. You can also commit to increasing the savings amount when your salary increases.?

Save up for big purchases

When you have a higher income, it's easier to take up debt because you can afford the minimum payments. Instead, try to save up ahead of time to pay for big purchases. This can help you avoid adding on debt while still keeping your everyday finances afloat.

Reach out to a financial advisor

If you're struggling with increased expenses following a boost to your income, a one-on-one financial session with one of the financial experts at MoneyAfrica could help you get back on track. MoneyAfrica can help you see your money in a new way and build healthier budgeting, saving and spending habits.

Our Ask Me Anything (AMA) session will hold as follows:

Topic: The Nuts and Bolts of Investing

Date: Saturday, August 11, 2022

Time: 11am WAT (Nigerian time)

You can sign up using this link https://bit.ly/MA-AMA

***

We often get questions regarding how to plan your finances to align with your relocation plans, especially for students seeking to further their studies. As always, we have heard you, and we have put together an e-book to help you navigate this. Simply follow this link, to get your FREE copy of the e-book:?The Japa Encyclopedia.

***

Did you find this newsletter useful? Please feel free to share it. You can read?previous newsletters here

Do you have any questions? You can send an e-mail to?[email protected] ?or send a DM to any of our social media channels.?

Get our annual subscription and learn more about how you can invest safely and build a solid portfolio in 2022.?