Congratulations! You’ve just gotten a large promotion at work (lifestyle inflation), received a significant return on investment, or maybe even won the lottery. Whatever it is, a boost in income is always cause for celebration. However, many people become too enthused and dramatically increase their purchasing habits in reaction. As a result, they end up exactly where they started, if not worse.
With every increase in income, lifestyle inflation becomes more difficult to control. The desire to spend is strong and difficult to overcome, no matter how determined you are. After all, you’ve worked hard for it, and you deserve to enjoy it. However, you must also be aware of what you do with your additional money. While it may be difficult, making wiser decisions today will put you up for a more prosperous financial future in the long run. If you’ve recently found yourself with increased income, here are some recommendations to help you sensibly manage lifestyle inflation:
Understand Your Goals
Lifestyle inflation
Spending money is easy, but saving it is considerably more difficult. Before you go out and spend your newfound money, take a time to consider your short- and long-term goals. Where do you want to be in 5-10 years? What changes do you need to do right now to get there later? Re-evaluating your goals may help you prepare better for the future while also reminding you of the obstacles you may face and the actions you must make now to get there later. While a raise today appears important, it may merely be a drop in the bucket in the long run.
Re-Examine Your Budget
You should always review your budget on a regular basis, but this is especially crucial when you receive a rise. First, ask yourself whether spending more in any category would make you much happy. Would sticking to your current budget have any negative consequences for your way of living? If the answer is no to either, consider maintaining your current budget. While you may desire to spend a little extra here and there, sticking to your current spending patterns can save you more money.
Transfer to your savings account
As the expression goes, “out of sight, out of mind.” Consider automatically moving excess funds to your savings account. To avoid forgetting, you can schedule this to occur monthly or biweekly. This way, you can watch your savings account increase steadily over time. However, it’s also a good idea to start thinking about how you may invest your savings as they accumulate. Investing your money wisely will result in a higher return over time.
Prioritise your debt
Lifestyle inflation
If you have debt, one of the first things you should consider is how to pay it off. Allowing debt to accumulate over time naturally generates interest. If you have extra income, you should absolutely consider paying down your debt. When it’s all paid off, you’ll feel a weight lifted from your shoulders. You’ll then be able to fully enjoy lifestyle inflation if you want.
