If you have ever dreamed about making more money, received a raise, and then had no idea where that extra money in your paycheck was going, you’ve fallen prey to lifestyle inflation. Here are four ways to combat lifestyle inflation and put your raise to work for you:
What is lifestyle inflation?
Lifestyle inflation occurs when expenses that you previously considered luxuries become commonplace. This could be upgrading your home or car or just spending more on day-to-day expenses like groceries, dining out, and shopping.
Ways to combat lifestyle inflation
Identify your goals
Knowing what is important to you is critical to combatting lifestyle inflation. If you aren’t working toward a goal, you have no reason not to spend all of your money. Take the time to list out your short-term, mid-term, and long-term goals.
Plan for your next raise now
Lifestyle inflation can happen anytime but it’s most likely to occur when you receive a pay raise—unless you already have a plan for that extra money. Whether your annual review is around the corner or months away, make a list of what you would do with the additional funds. These should align with your values and goals—if they don’t, you probably need to reassess whether you’re being honest with yourself about what those are.
Once you know how much your new salary is, use a paycheck calculator to estimate your new take-home pay. Then, budget exactly what you will do with the difference and set systems in place (like automated savings) to get that money going where you want it from your first new paycheck. Once you get your first paycheck, make adjustments if needed, but you likely won’t need to tweak much.
Do a “No Spend” month
The tricky thing about lifestyle inflation is that once you get used to something, you rarely reassess its importance to you. A “No Spend” month will pull you out of your routine and give you a total reset from which to evaluate whether certain expenses are enhancing your life as much as you think they are. A “No Spend” month is exactly what it sounds like—don’t buy anything outside of necessities. You can tweak the rules to work for you; just be sure to write them down so you can refer back to them.
Treat yourself
It may seem counterintuitive, but treating yourself can actually help combat lifestyle inflation. Lifestyle inflation happens when a treat or luxury becomes commonplace. So when you treat yourself, acknowledging that it is a treat is important.
