What is lifestyle inflation and how to avoid it!

3 May, 2023 / words by IALH Editorial Team

Written by Emiley Phillips

Image by @latto777

A term of the time right now…inflation. We are living in the era of prices going up and life just becoming that bit more expensive! But have you heard of lifestyle inflation (AKA lifestyle creep)? The same principle applies, an increase in income resulting in a rise in monthly expenses – not always proportionate to one another.

Lifestyle inflation is spending more money because you simply earn more money.

Why does it happen?

In life, the ultimate aim is to progress, so most of us work with the intention to grow, develop and earn more. When earning more, there is more of a reason to splash the cash on the more luxurious things in life. There is less reliance on living pay cheque to pay cheque. It’s a proud moment to be able to treat your hard work!

It can be made worse when wanting to show off your lush life, or ultimately match that of your friends/family/colleagues. In layman’s terms – social factors. For example, if your sibling gets the latest iPhone model, you would be more inclined to then purchase a new phone – just as good or even better than theirs.

It should be noted that everything you see is not always true. Your friend who is driving around in a flash new car, may be in masses of debt or leasing the car off. They might be trying to fit in to the ways of lifestyle inflation, but not actually having in reality.

Some benefits of lifestyle inflation

– Being able to afford things you could not before

– Some expenses as a result of lifestyle inflation would make sense i.e. hiring a childminder from the extra income received as the increased income comes at detriment to longer working hours and less time at home with the children

– Positive impact on work life balance

Some drawbacks of lifestyle inflation

– Spending too much on unnecessary things ‘just because’

– Limited ability to build your wealth and utilise the extra income for future situations

– Unhealthy habits form·      

– End up worse off than before in terms of financial state

Avoiding and managing lifestyle inflation

It is possible to experience lifestyle inflation, and life a nice life, whilst saving and spending wisely. It is all about learning how to manage your money. The disadvantages can be avoided! Here’s how:

1) Decipher between a need and a want

Do you really need that Gucci Bag, or is it just something you want? Is it a nice to have or a needed item? Do you need to go to The Maldives on a first-class flight, or is it ok in economy?

Build a criteria to help you chose which type of purchase you are about to make. From this you can reconsider and take a second guess if it is really needed. When you get extra income, of course the urge to go wild and spend it is there but take a step back and consider your options here.

2) Commit to a set savings amount

Make a promise to yourself and set up a direct debit that allows you to save a fixed amount of your income each month. This way, you can still spend your income on what you wish, but know that you have some remaining in another pot, for that rainy day i.e. future spendings that really matter.

For example, if you earn £2,000 extra each month, put 25% into a fixed savings account, so that you are saving £500 each month. By the end of the year, you would be left with £6,000 – doesn’t that feel better?!

3) Avoid committing to anything long term

Reward yourself, but choose against any long term, hefty commitments such as a new apartment or car. Stick to a holiday, smartphone, watch etc. something more one off.

A top tip here is to set a ‘I’ll sleep on it approach’ for any impulse purchases. Sleeping on the decision to buy or not will make you revaluate its need. If you see the lack of use and identify the impulsivity, you would be less likely to wake up the next day wanting to buy.

4) Pay off your debts (if you have any)

If you were feeling sensible you could use your income rise to pay off any outstanding debts or loans you have. Wouldn’t that be great – to be debt free and up to date on all payments!

This option may be less attractive to spending the money on yourself or something more enjoyable, but this is most certainly a smart option that you will later be thankful for.

So, there you have it, your 101 guide to Lifestyle Inflation. Can you relate? Have you had an increase in your income? How did you choose to use it? Hopefully in a money smart way!

In respect of the information above, this content is only for informational purposes and does not constitute any kind of financial advice.


IALH Editorial Team


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