How To Fight Lifestyle Inflation?

 If you do not tackle lifestyle inflation, your savings could be severely impacted and your financial goals may become challenging to achieve

It is true that for many of us, our salaries or income may increase every year. However, that is not a guarantee for our financial wellbeing. There are various other factors that can create financial hardships, even with rising income. One of these is lifestyle inflation, which is quite common in today's modern times. Let us take a look.

What is lifestyle inflation?

Before we learn how to avoid lifestyle inflation, we first need to understand what is lifestyle inflation. You may already be a part of it, but may be doing it without realizing the consequences. In simple terms, lifestyle inflation is when your spending increases in proportion to your rising income.

It is natural for us to improve our lifestyle as our income rises. But when people overdo it, the financial situation can become challenging. Savings and financial security could be severely impacted when lifestyle inflation reaches its peak. Some examples include buying a bigger home on costly EMIs, luxury cars, luxury goods, etc. Taking big loans are also part of lifestyle inflation.

While everyone aspires for a better life, it cannot come at the cost of ruining your savings and financial goals. Now let us look at some simple ways to combat lifestyle inflation.

How to manage lifestyle inflation?

Avoid large debt - All types of loans such as personal loans, home loans, car loans, etc. are the key drivers of lifestyle inflation. With rising income, people think that they can easily manage the EMIs. And it may be true, but then savings and financial security become a major risk factor. You can take loans, but ensure that you have enough left for your everyday needs and also ample savings for your financial security.

Follow the 50/30/20 budgeting rule - Since incomes of people may vary, it becomes a bit difficult to understand exactly how much to spend and how much to save. As a solution, you can follow the simple budgeting rule of 50/30/20. As per this strategy, your overall income is broadly divided into three categories - 50% for your present needs, 30% for your lifestyle upgrades and 20% for your savings. With this simple trick, you can effectively manage lifestyle inflation.

Resist peer pressure - Your friend or your neighbor may have purchased a fancy car or invested in a new luxury house. Seeing that, you may start having similar thoughts in your mind. However, you should not get carried away. You need to focus on your financial priorities and avoid competing with others' lifestyles.

Embrace a minimalist lifestyle - If you focus on your needs and less on your wants, you can achieve a healthier and more fulfilling lifestyle. For example, you can cook at home more frequently instead of eating at fancy restaurants. Instead of buying a fancy car, you can choose to travel more by public transport. Especially when good connectivity such as metro trains may be available.

Avoid impulsive behavior - This is a common factor in lifestyle inflation. You see a new product and just want to have it. And with same-day and even 10-minute deliveries, it has become harder to resist the temptation. Brands further make the deal irresistible by offering heavy discounts and offers. It is good to have new experiences and unique products may make it possible. But try avoiding impulse buying. Wait at least 48 hours and come back to see if you still want to buy that product. Chances are you may no longer be interested.

Automate savings and investments - Most banks now offer automated savings options in various instruments such as fixed deposits, SIPs, etc. By choosing this, you can ensure that your savings are safe every month. Choose a date that is close to when your salary or income is credited.