Lifestyle Inflation: The Silent Budget Killer

Last Updated on: September 18, 2023

Lifestyle inflation is one common problem for young professionals and even seasoned employees in the workplace, and getting trapped in it is relatively easy.

With all the input from social media, peer and family pressure, or a personal goal or dream of living more luxuriously, a lifestyle “upgrade” is necessary.

Or is it?

So, what is lifestyle inflation? 

Lifestyle Inflation
Photo By Edgars Kisuro On

Lifestyle inflation is a phenomenon when someone increases their spending habits proportional to an increase in their salary.

Here is an example: an employee earning a salary of P15,000 got promoted. Along with the promotion comes a salary increase. He now earns P23,000. That is a P8,000 increase! But what would he do with that “excess salary”? Will he save it? Invest it? Or somehow find something to spend it on? Sadly, many employees would mindlessly choose the third option.

*for simplicity, we will not consider the annual inflation rate, income tax, and other deductibles.

So he bought a brand new cellphone in installments for P2,000/month for 24 months, enrolled in a gym for P2,000/month, rode more in Grab, added P2,000/month in transportation costs, and went out more often, spent P2,500/month. All these added indulgences in your life because, somehow, you can now afford them.

But with the increase of P8,000, he somehow managed to spend P8,500, putting him in a P500 deficit. Can you see the danger?

If not properly solved earlier, a higher salary will likely cause more problems. I know people who earn six-digit incomes but are in seven-digit consumer debt. So, proper mind-setting and financial habits are necessary to avoid the lifestyle inflation trap.

5 Ways how to avoid lifestyle inflation:

1. Live below your means.

Living below your means implies that you should not spend more than what you earn. If you make P20,000/month as a teacher, you should not spend beyond that. So, finding ways to fit your expenses into your salary while also saving enough for emergencies will be ideal.

It would be best to live “below” instead of “within” your means. Don’t be afraid of people ridiculing your modest lifestyle because they will most likely not help you in times of need, anyway.

2. Don’t keep up with the Joneses.

Who are the Joneses? They are the people you see living a lavish lifestyle. Somehow you want to imitate them because you think it shows success. But this is one of the biggest traps of all.

You can never keep up with the Joneses. Because as you get closer, they pull ahead further. This is a slippery slope and a never-ending pursuit—a rat race.

3. Don’t get into consumer debts.

I do not want to get into debt. But there are rare instances when it is okay (according to some finance advocates), like mortgages or business loans.

However, consumer debts include credit card debts, personal loans, home credits, 5-6 lending, and other money borrowed for personal consumption. Try as hard as you can to avoid these debts.

4. Have a budget and follow it

Having a budget is only half of the equation of well-managed personal finance. Half of it is following it – which is much more difficult. When I was still starting, I spent my first-year budget only for show, to see somehow that I am a responsible adult. However, I could not follow it because I was living beyond my means.

5. Don’t Get Into FOMO.

The Fear of Missing Out (FOMO) is another anxiety-inducing experience many encounters. They think that great things will happen while not present, and they are missing out. Because of this, many people spend more to be at that moment even though they are incapable financially – again resulting in debt.

But you should not be afraid of FOMO. Try minimizing social media usage if you must since it is one of its primary causes. Try also to focus not on your lack but on your blessings.

Perspective changes everything.

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