How to Avoid Lifestyle Inflation – More Money, More Problems


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From the popular song by Notorious BIG, the phrase “more money, more problems” comes to mind. In the song, he seeks to illustrate that more money doesn’t automatically solve all problems, rather it compounds them. If you haven’t learned from not having enough, then you’ll face the exact same problems and others that never existed before.

For most, more income is often followed by more spending. Celebrities and lottery winners are prime examples of lifestyle inflation – they serve as proof that more money doesn’t always translate to financial stability.

So here is how to avoid lifestyle inflation or at least how to reduce it to manageable levels to minimize the negative effects.

1. Plan Ahead

It is extremely tempting to raise your spending when your income increases. Don’t. Instead, plan ahead for any extra money – a raise or lottery win. This isn’t to get you to spend your time daydreaming of winning a lottery or getting a raise but to get you to adopt good practices to establish a plan for earnings.

Consider whether you want to buy new gadgets, house, car or just save or invest it. When you plan ahead, you are more likely to put your money into better use.

2. Pamper Yourself

There is no point to working hard if you aren’t going to at least treat yourself once in a while. However, while you are at it, maintain a balance between what you save and spend to ensure that financial stability and happiness isn’t at risk.

So, indulge only within reason. Being financially responsible is a lifestyle that requires continuous hard work and discipline.

3. Rebalance Your Budget

With more money coming in, you’ll need to adjust your budget and determine where to place the extra money. This way, you’ll be less likely to waste it.

However, it should be stressed that an increase in income may not have a significant impact on your budget after accounting for taxes and expenses. This is why it is important to adjust your budget and determine the real changes to your budget to get a healthy perspective of your current financial position.  

Once the math is done, you can now consider whether that new car or shopping spree with friends is a good idea, depending on what actually lands into your account each month.

4. Mind Your Friends

Spending time with people who spend more, will result in pressure to spend more. Therefore, mind your friends and keep those with a similar budget and lifestyle to yours.

When you keep a friend with similar financial goals to yours, they will not give you pressure to spend more or make you feel bad about where you live, the car you drive or even the phone you got.

If your friends are modes, you will match their behaviour and, are more likely to spend less.

5. Redefine Goals

Redefining your goals helps you stay focused on your financial goals. With clearer objectives, given the change in your life i.e. a new job, a raise or promotion, you’ll be able to know where the extra money needs to go.

In short, a redefined and a sketched out game plan will only bring you closer to your financial goals – be it travelling more, buying a home, paying off debt or even paying for your children’s education.

6. Eschew Debt

To some people, more income is synonymous with more borrowing ability. They believe that an income increase provides more opportunities to rack up more debt than before – thus ‘afford debt’ mentality. Getting into debt when you earn more, is actually a step backwards not forward.

In truth, more debt only spreads your budget thin, even when you are earning more. Therefore, instead consider paying off more of your debt with the extra income and save on interest expense. After which, consider having a savings account to save for things you want such as a car or home.

7. Change Gradually

There is nothing wrong with changing your lifestyle as you achieve more in life. However, this does not mean that you blow all the extra money you make.

To achieve success in this, gradually increase your spending on things little by little. This way, you are more aware of the impact of this increases on your expenses over the long haul. An increased lifestyle expense translate to an increased long-term expenditure i.e. a bigger house requires more upkeep and maintenance or a more expensive car needs to best mechanics.

Ultimately, just celebrate modestly and plan your next move, remembering that small things quickly add up; small incremental changes are more sustainable than huge ones.

Final Word

All in all, make a plan and remember that success isn’t tied to material things, but rather how well you put your money to work for you and your long-term financial goals.

By and large, don’t spend all your extra income before it makes a meaningful difference.


Image credit: Top by Kaboompics via Pexels.

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.


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