Lifestyle inflation is a phenomenon commonly associated with a pay increase. A higher income can often spell more spending power for a typical working individual, and happens each time income gets higher.
A surge in income often means that one can start getting all these ideas for the money. Sometimes, the ideas involve saving, or putting the money into investments, or settling debts—all great things as far as finances go. There are also going to be moments that you just forget about the financial road map and want to spoil yourself, after all, you’ve worked hard to get that income surge.
Personal urge to spend
Inflation in lifestyle could mean anything from an uptick in general spending to making much larger purchases—such as cars, or homes. The most prone to this are usually those who are in their early 20s, mostly younger people enjoying the freedom that having their own paycheck provides. Jean Folger of Investopedia writes that lifestyle inflation happens because people may feel the need to keep up with trends, or to feel compelled to spend more in order to remain in relevant social circles.
Because you’ve gotten a pay hike, there’s suddenly every reason that you should spend. Often, it’s reasoning that you deserve it. While true, spoiling oneself senselessly to fill the gaps in your former spending plan robs you of the opportunity to set aside funds for the future.
Between the lower prices of goods and the consumer mindset that’s prevalent because it might seem like there’s more than enough, there’s a tendency for expenses to balloon, eventually spiraling out to living paycheck to paycheck.
Other forces that affect spending
When someone says that items have higher prices, it’s treated as code for inflation, and the rising prices of goods. The country’s inflation rate is expected to play out at 1.2 percent at the end of the quarter, according to Trading Economics and analyst expectations. The low inflation rate can spell out more purchasing power at cheaper prices for many consumers. A higher paycheck and lower prices can mean more reason to spend.
Investing part of your income is also a priority, or paying off any acquired debt. This will depend on one’s actual priority—after all, there’s still monthly expenses to consider, and extra financial responsibility.
Lifestyle inflation is often considered an internal issue, brought about by a need to keep up with everybody around you. It’s a strong tendency that is influenced by comparison to your friends or colleagues. Seeing someone you are close to enjoying a new car or gadget can lead you to think that you need it as well.
This line of thinking isn’t helped by the fact that shopping has become more convenient, with many merchants and retailers moving online. Another factor that affects inflation is the constant bombardment of ads, all of which are enticing.
Some levels of lifestyle inflation are unavoidable; some changes to one’s lifestyle are perfectly normal and shouldn’t be shied away. Some change of thought should be necessary in order to avoid falling into the trap of lifestyle inflation. However, buying higher-quality clothing is a must if you’ve been promoted or want to move up to the next level of the corporate ladder, for example.
A better future
A boost in income is great, and while lifestyle inflation occurs at a personal level, factors like lower market prices and higher spending power will affect whether one chooses to spend, or save for the future.
Enjoying the fruits of one’s hard work isn’t bad, but moderation is a must. A balance between handling higher purchasing power, saving for the future, and enjoying the present can be struck without putting yourself through the struggle of debt.
Miggy Castañeda writes about personal finance for MoneyMax.ph. MoneyMax.ph is a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.