Lifestyle Inflation

Mr. X, 27, just moved into a new city. His new job, comes not only with a salary hike but also with many perks. But after the first month – despite the proposed hike in his earnings, Mr. X finds himself left with hardly any money in his bank account. “Where did all the money go?”

This is the question that we generally face not only in the above mentioned case but also likewise. It is called "Lifestyle Inflation".

How and when do we get affected by the Lifestyle Inflation?
When people move to a higher salary or come in possession of inheritance money, they often tend to over exceed their spending limits and capacity. At times, people might simply indulge because they have a need to “keep up” – with their social circles.

Here are a few simple ways to handle Lifestyle Inflation:

• Keep some perspective

When you land with some money in your hands your first instinct is to buy that thing because ‘you-have-wanted-since-a-long-time’, instead you could start by repaying some of your debts. Clearing your liabilities should be of primary importance: paying your bills and subscription (phone, electricity, utility, etc) this should be your priority. This will benefit you in savings over expenses.
  

• Save more

“Do not save after what is left of spending but, spend after what is left of savings” – Warren Buffet.
Following the above mantra with a guided plan for investment will lead you with more money in hand. You should always reward yourself occasionally but only after you achieve or believe that you have achieved your financial goal.

• Don’t get too comfortable

Fast paced life, big money usually overwhelm people, they start taking things and their income for granted and in the event forget and fail for prepare for an outcome which can always occur.

Therefore, remember never to get comfortable in any scenario – and always have an emergency fund, which will possibly take care of your income needs for at-least 6 months, when you might need it the most!

Amit K Arora
Follow @akarora76