Lifestyle Inflation and Solution

Image from economictimes.indiatimes

A few days back, I had a wonderful opportunity to speak to graduating accountancy students of Xavier University. One thing that I discussed in there is the mistakes a new professional could make with regards to their finances. And one item that I discuss thoroughly was on the matter of lifestyle inflation.

Lifestyle inflation means a drastic change in one’s way of living. And indeed this is apparent to not only new employees but also to us who have been working for so long now.

When we are starting to earn, we tend to be overwhelmed with the amount of our salary. Of course, we don’t have that much before when we were still studying. That is why, we tend to buy things we haven’t had before. Eat at restaurants we’ve never been. Often than not, we squander our salary since we know in less than two weeks, we would be getting another one.

Slowly, our lifestyle changes. What used to be a 3in1 coffee at home is already a take-out latte from an expensive coffee shop. What used to be a shirt from a department store is now labelled with a big fashion brand.  What used to be our favourite eating place is now shifted to fancy restaurants in the metro.

These things are not wrong. After all, it is your salary and you are just enjoying the fruit of your labour. Truth be told, I was once like this. However the problem now is my spending equates with my salary. In formula salary = spending. That is why, I was not able to save at all in the first place.

Then questions hit me. What if my lifestyle is the same back when I was still a student even if I am already earning? Can I save? And the answer to that is yes.

When I was in college many years ago, my allowance ranges from 20.00 to 50.00. That simply covers my transportation and food. Oftentimes, I would just pack my lunch or go home. That equates to 400.00 to 1,000 a month worth of expenses if I’m going to school for 20 days. Hence, if I am currently employed, I can just spend roughly the same amount if my lifestyle is that of a student. If I was earning like 10,000 a month I can have an extra 9,000. And that amount could be my savings amount! So there was my solution.
Living below our means is always the key in order to be able to save up and sort our finances. And lifestyle inflation is a big no. In fact, if we are starting to earn, we must not be tempted to increase our lifestyle in order to suit our salary. In the end, we might not be able to save at all.

So assess your lifestyle today. What was your lifestyle before and now? Is there a big difference? Is this also true with regards to your lifestyle expenses? If you were to live your life before with your current income, will you be able to save? If yes, perhaps it would be nice to revisit that stage and implement it. You might be surprised just how much you can be able to save up in the process. 

P.S. To those doing the 52 Week Money Challenge and 52 Week Money Challenge Version 2, it is Week 8 already! Did you deposit the next amount yet?

P.P.S Want to know more about investing, savings, stock market and more, check out my reference here. You can download free ebooks and resources too.