What is Lifestyle Inflation? 5 Ways to Avoid It

Managing your finances is an important task. However, lifestyle inflation can make it more challenging to keep it on track. Luckily, there are many to work against lifestyle inflation through intentional decision-making.

Let's find out what lifestyle inflation is and how you can avoid it.

What is Lifestyle Inflation?

Lifestyle inflation happens when your spending gradually increases over time as you desire a more luxurious lifestyle. It usually occurs when your income increases over time, and you increase your spending to keep pace with that rising income. With that, your payment is growing, but the amount you can save never increases over time.

Unfortunately, lifestyle inflation can quickly get to you if you let it. It might start with an essential simple lifestyle upgrade like a takeout meal or brand new car. But it could quickly convert into an expensive lifestyle that you can barely afford later. In the long term, it leads to still savings and makes it challenging to reach bigger goals. You might struggle to save for what you truly need while enjoying the convenience of things that do not matter at the moment.

For instance, you might not fund your dreams because your budget is saturated with items you don't necessarily need. Most of us will fall into this lifestyle inflation trap without decision-making over our spending. However, it is natural to crave extra convenience and comfort, but don't let it come at the expense of your long-term goals.  

Read more: 10 Key Ways to Improve Your Money Mindset

5 Ways to Avoid Lifestyle Inflation

Here are five tips that you can look out for and ultimately stop lifestyle inflation before it starts.

1. Be Intentional with Your Money

The happiness when a shiny new 4% raise gets reflected on your checks is overwhelming, but if we relax too much and stop paying attention to what we're spending. The way to tackle this is to be more intentional with your money. Standard raises typically are not something that you get to know all of a sudden notice on your check. Make a plan to want what you want to do with that raise.

Do you want to clear your debt or save it?

Decide before you get your raise to put yourself in a great spot, even if you decide to spend a little more money. Note that inflation is something you can't control, but intentionally putting money toward something is a decision you can handle.

2. Spend on Things That Bring Value

Ever felt guilty about spending more money, even if it was something you wanted? You can now say goodbye to that feeling only if you spend money on what you value. It has many benefits for starters; it permits you to spend money on what will bring value to you. Secondly, it helps you not buy things that don't value your lifestyle. It's easier to keep control of your money if you're not spending it on the things that do not matter at the moment, as this directly affects lifestyle inflation.

If worldly things make you happy, that's fine. We recommend you to focus on experiencing and not something as they tend to have a higher reward.

Ask yourself:

  • What is most important in your life?
  • Where do you enjoy spending your money?
  • What do you enjoy spending your time on?

Figure out these answers and explore what you value to help you guide you in your spending. This will act as a defense to the problem.

3. Avoid Your Raises

Out of sight, out of mind. "I got a Rs 40,000 raise at work, so that means I can now afford a brand new Rs 8,00,000 car!" There goes that raise for 5+ years. Have you had a similar thought to this? Think about when you do get a raise at work. Most places make a big deal about yearly reviews and hikes. If you were making ends meet and didn't need the money, it's safe not to include it with the rest of your earnings.

What to do now?

Setting up an automated transfer into your savings account is one idea, but if you want to include that money to pay off debt, subtract your old paycheck amount from your net paycheck amount, or you can either add it to any automatic payments you make to your debt or set up an additional cost.

Read more: 7 Smart Ways to Spend Your Bonus

4. Hang Out with People Who Have Similar Values

It's tough not to spend money around people who like to spend money. It's tough to keep up with and maintain that sort of lifestyle. Now, imagine if you were friends with the Joneses! However, it is essential to maintain a relationship with people who spend like you do and value similar things.

Take a look at the friends you have and hang out with. Can you hang out with those who like to spend less money and get together with friends who have similar values to you more?

Another thing we recommend doing is talking to your friends, which helps inflate your lifestyle. If they are true friends, we know bet they are, they will understand it, and after the conversation, some of your friends that hinder your ability to stave off lifestyle inflation may become friends that help you avoid it. It's worth a shot!

5. The Best Offense is a Good Defense

Lifestyle inflation can be reversed if you notice that you've succumbed to it. However, like football and so many other things, the best offense for fighting this is a good defense. Recognizing lifestyle inflation and preventing it is crucial. Staying in control of your finances and you'll notice that the unintentional shift with lifestyle inflation will be a thing of the past.

(Check out 'Learn & Grow with Wizely' 'to read and learn all about personal finance and financial planning.)

Sakshi Mehrotra

Sakshi Mehrotra