Almost everyone suffers from lifestyle inflation at some point in their lives, but what most people don’t realize is how badly it can impact on your future retirement plans.
So what is lifestyle inflation?
Lifestyle inflation is where your lifestyle expands as you earn more money. This normally means that instead of saving all that extra cash you are making from promotions at work, you end up spending it on trinkets or other things that you never used to be able to afford.
How Lifestyle Inflates
There are plenty of ways in which your lifestyle can inflate. Here are just a few ways in which your lifestyle may inflate as you get older:
- Starting a family and having children
- Taking up a new hobby or sport
- Buying fancy sports cars
- Health concerns that require expensive medication
- Buying the latest smart phone
- Getting a gym membership
- Subscribing for cable TV
Whatever your life situation, there are bound to be things that will inflate your lifestyle. What matters is how well you control your spending on frivolous items and how prepared you are for living in your retirement with your existing set of expenses.
I remember my first job as a fruit and vegetable guy at the local supermarket. I was hired in the position whilst I was still in high school and I distinctly remember feeling like I had all the money in the world after only a few pays. Let’s face it, I had never had this amount of money before and I felt like a kid in a candy store. Except this time I had more money than I ever had before and was about to embark on a journey of lifestyle inflation.
Getting my first job was a major milestone in my life, but it also started me off on the wrong track – the track of spending more money than I needed to. All of a sudden I was buying computer games, sound systems and regularly going out with friends to movies, video arcades and cafes. Almost every single dollar I earned was being spent and thoughts about my financial future couldn’t have been further from my mind.
As I have gotten older I have become more aware of how much unnecessary spending I was doing and I have started to budget and track my spending far more rigorously than I had done previously. This allowed me to really examine my spending habits and work out what I needed, and what I wanted. From there it was a simple matter of cutting down the amount of wants to a level where I was saving more of my income each week.
One of the other benefits of getting older is that I have been fortunate enough to increase my income. For each increase in my pay I have been able to increase the amount of money that I am able to save for the future. Despite me writing this topic on lifestyle inflation and telling you how badly it can impact on your future finances, I still find myself spending money on things that I don’t need. I’m not as bad as I used to be, but there is always room for improvement.
Like all things in life, managing your money is as much about finding the right balance as it is enjoying the money you have earned. It is a juggling act that you need to get used to if you want to be able to retire comfortably as well as enjoy yourself and the money you have earned.
This is an extract from the eBook – The A-Z Of Saving Money which you can now pickup here for the reduced price of $4.99. If you enjoyed this then you will definitely enjoy the book.