Lifestyle inflation or lifestyle creeps, refers to a situation where an individual’s income increases and their spending also increases. When an income increases, people tend to also have much interest in luxurious spending, they suddenly feel that because now they are earning a lot it is time to have expensive things that are sometimes unnecessary. But lifestyle inflation can ruin finances or an income. In an article by Clever Girl, a personal finance website for women, lifestyle inflation usually happens when your income increases over time and you increase your spending to keep pace with that rising income. With that, your income is growing but your savings rate never increases substantially. Didier Iradukunda, says that upgrading your lifestyle when you get a raise is okay but doing it in a moderate way is better and can avoid lifestyle inflation. “You can always treat yourself and buy yourself luxurious things, but do it in a calculated way, take time to calculate your raise and do the math on how to spend your money, analyse if your raise will be able to offer you an expensive life and won’t leave you without savings or broke, if it won’t try to upgrade moderately in a way that fits your income,” he says. Marie-Anne Umugwaneza, a businesswoman, says that living a luxurious life is fine if it is not overly done because when a person exceeds their limit that is when lifestyle inflation occurs. “I understand treating yourself in a luxurious way is good but you don’t need to overdo it, you can do it from time to time and consider spending wisely if it helps you make a calendar and plan for how to spend your income, including the most needed things and the less needed things and try to balance. You can minimize the less needed things by planning for them time to time,” she says. Alice Akayezu agrees that treating yourself from time to time is a great idea but also a person needs to treat themselves with a reason. “You don’t always need to go out with friends to have vacations every weekend, you have to have a reason to treat yourself in order to avoid lifestyle inflation, a reason is telling yourself while in the middle of the month that you need a vacation because you have been working a lot, or that you need to go out because you miss you friends. Having a reason will help you avoid overspending,” she adds. According to Clever Girl’s article, you should absolutely spend enough on what really matters to you. However, consider the reality of your budget before taking your purchases too far. If you get a raise, decide how much you are willing to spend on “fun”. As you think about your increased lifestyle spending, take some time to determine how you want to use this new money to reach your long-term financial goals. Find a balance between the two that works for your lifestyle and your wallet. According to management consultant, Jim Wang’s article in Forbes magazine, making a budget and sticking to it is one way of avoiding lifestyle inflation,. “Once you know where your paycheck goes each month, make a spending plan that helps you reduce your current expenses. This plan can also help you save for the “essentials,” including upcoming large purchases and retirement. Figuring out the money ratios can be a challenge at first. As you follow your new plan, make adjustments where necessary to find your spending-to-savings mix”. He continues with another piece of advice, saying that making random purchases can be another easy way to lose track of your important financial numbers “Set a monthly spending limit for those inevitable unplanned purchases. For example, you may only spend $100 outside of your planned budget categories,” he says.
