• Search the Web

How Lifestyle Inflation as a Problem Affects Financial Goals?

5 min read
LIFESTYLE INFLATION 2

Lifestyle inflation is an increase in your expenses as your income rises.

The ongoing COVID pandemic has taught us the value of many trivial things in our lives, from a usual morning walk to travelling, vacationing, to a simple family get together. Many people have become jobless and are facing a financial crisis.  

Emergent situations such as job loss or a medical emergency can make a drastic impact on our lives. For sure, however, once we are out of this situation, we come out as a whole new human being.

 Such changed new human beings will then be more cautious professionally as well as personally in their lives. The first step to focus on is to be financially secured so that facing such emergencies will be a bit easier than usual.

The most subtle, unnoticed thing that we often overlook and fall prey to is lifestyle inflation. The tiny, unseen, unrecognizable enemy of our financial goals.

What is Lifestyle Inflation? 

Lifestyle inflation is an increase in your expenses as your income rises. Confused? Lifestyle inflation is the most unnoticed enemy of our finances. Let’s go through an instance,

Suppose you are having a good 9-5 job, live in a PG, hang out with friends once or twice in a while, and travel in public transport. One day you get promoted and get a hike in your salary. Now you have shifted to a 1 BHK apartment, bought your car, and go on a vacation every other month. This is lifestyle inflation.

Lifestyle inflation sneaks into your lives the moment your luxuries become necessities. It sounds harmless. After all, you have worked so hard, and you deserve to pamper yourself with such fancy stuff.

There’s nothing wrong with fulfilling your dreams of buying your favourite car, or buying a bigger apartment for a better living, or buying those shoes you wanted for so long. 

Yes, you deserve to fulfil your wishes by buying things you always wanted to, and if you keep fulfilling your desires, you will end up living a paycheck to paycheck life. It’s a myth that buying things you always wanted to buy will give you happiness instead it will provide you with a financially unsecured life.

What are the Causes of Lifestyle Inflation?

To understand the in-depth danger of lifestyle inflation, let’s look at the reasons behind it. 

In most cases, we realize the damage caused by inflation only after facing the damage itself. This is the most unseen danger to our finances. You won’t even realize that you have fallen prey to lifestyle inflation.

  • Lifestyle inflation is living beyond your means. Buying more stuff than you need. This is one of the vital causes of lifestyle inflation. The belief that you deserve more for the hard work you do is harmless until done in excess. Buying yourself more things to feel better is right once a while, but when done in excess can damage your financial being in the long run.
  • Social media and the internet have taken social comparisons to the next level. You keep comparing yourselves to random “picture-perfect-social-media-life” and fall into an inferiority complex. You think you deserve more and better, eventually increasing your expenses.
  • Human beings are complex social creatures who like to be associated with things like power and fame. In this cat-race of showing their power and fame, they keep buying better and expensive stuff to stand out in their social circle hence being a victim of lifestyle inflation.

 These are the most common and significant causes of lifestyle inflation. Now you must be acquainted with problems you can face if you keep falling into the bait of your predator.

Why Is It a Big Problem with Today’s Generation?

Lifestyle inflation is expected to be the emerging issue of this generation because people still are unaware and in most cases ignorant about the severe consequences it can cause to their lifestyle. There are many consequences such as:

  • Getting an early retirement will always be delayed if you don’t take lifestyle inflation seriously. Even if your income increases every year, you will be left with zero earnings if you keep investing in non-income generating things. You will have to keep working hard day by day to survive the rat-race and hence stuck yourself in a pattern of earning more and spending more.
  • This will make you less flexible in taking risks in life. Be it quitting your job to start your own business or taking early retirement as you never invested in income-generating assets.
  • By living beyond your means, you will always find yourself in paying loans, EMI’s, buying stuff just for happiness. Even if you earn enough to get away with these loans quickly, you will never be left with any money in your hand which in itself is a massive drawback to your financial being in the long run.
  • You will mostly live a paycheck to paycheck kind of life and will never be fully financially independent for a long time.
  • Ignoring lifestyle inflation will make you more vulnerable to stress. Constantly worrying about your car lease payments, home loans, medical bills will surely boost up your stress levels.
  • Having a lot of expenses and zero savings will make you more vulnerable to unexpected emergencies.
  • Understanding the simple fact that making more money will not make you rich rather than how you invest your money will decide how rich you are.
  • In rare cases, lifestyle inflation leads to lifestyle hyperinflation which is improvising your lifestyle without an increment in your income mostly by borrowing money. This will entangle you in a web of never-ending debt and eventually financial crisis.

Take Away

These are a few of the many consequences of lifestyle inflation that are mostly ignored by today’s generation. By understanding the simple fact that buying more will not give you happiness and times like these teach you the lessons provided you infer it right.

8 Comments:

  1. There is noticeably a bundle to find out about this. I assume you made certain good points in options also. Jordana Lionel Maxama

    • Hi Jordana,
      Well, thanks for understanding the moot point that I put forward.
      Yes, there are a lot of other issues that are associated with it
      Thanks

  2. Excellent writeup
    An eye opener though things are known but not realised

  3. wonderful article.

  4. wonderful article

Leave a Reply

Your email address will not be published. Required fields are marked *

  • Delight