In the previous material, I addressed the issue of managing a household budget with irregular income. I will finish this thread today. I don’t want you to equate saving with making sacrifices, because that’s completely missing the point, although unfortunately most people mistakenly believe that. I want you to be able to respond to the situation when it occurs and understand why it needs to be done.
What is lifestyle inflation?
Ordinary inflation is the one you hear about in the media. In a nutshell, it’s an increase in the price of goods and services. In Poland, inflation is measured by the Central Statistical Office (GUS), which periodically changes the composition and weight of the inflation basket. We will not address it today, although the two phenomena are very similar.
Lifestyle inflation is 100 percent about you. It’s a phenomenon of increasing spending as income increases. Since you are earning more and have more resources at your disposal, you want to indulge yourself. And there’s nothing wrong with that, as long as you can set a safe boundary for yourself.
If you’ve been watching every penny ten times before you spent it, when you get a raise you feel it’s time to let go. After all, it’s extra cash, and a little reward hasn’t hurt anyone yet. The problem is that the small reward doesn’t stop there. Often the new earnings amount is used up entirely. Out of a 500 zlotys raise, you don’t spend 100 or 200 zlotys as a reward while saving the rest. You spend it all.
Moreover, it is very easy and quick to get used to. To reiterate, there’s nothing wrong with rewarding yourself for your results, but regular spending on whims at some point stops being a reward and becomes a daily occurrence that you get used to.
It can happen to anyone
Lifestyle inflation can affect anyone who gets a sudden cash injection and has no idea what to do with it. The “I can do anything now” style of spending begins, coupled with an unfounded belief that it will always be this way.
No, it won’t. As in Hollywood movies, it goes with a cheap moral. First, we watch a protagonist who has a terribly hard life, but with indomitable willpower and tremendous effort, he achieves success. However, he lasts only a moment to lose it all and fall to the bottom, where he finds what he lost along the way: true values like friendship, family, etc. Then he realizes that he had always had in his life what gave him true happiness. He hugs his wife at sunset, some uplifting music is heard in the background, and it’s done... Bring on the Oscar!
Except that such stories are neither like that nor take such course. Mostly they end up with a break-up of the family, bankruptcy and gigantic debts. This may happen to everyone from a neighborhood thug through mid-level businessmen to the world’s biggest stars.
- Diego Maradona
- Mike Tyson
- Elton John
- 50 Cent
- Burt Reynolds
- Nicolas Cage
- Johnny Depp
- Wesley Snipes
... do these names ring a bell? I think so. Each of these people (and there are many more) had either officially declared bankruptcy or were on the verge of it. Only some of them got out of the trouble they brought upon themselves.
Since through poor wealth management and living in the moment you can get in trouble while earning even millions a month, do you really think it won’t happen on a smaller scale?
Why we succumb to it
People as individuals desire growth, in every sphere. We want to rise higher, not lower our level. It’s clear that you want to do better in life. Have you ever thought to yourself: “Oh my, I earn so much, it’s high time to get a little poorer”? Of course not. A raise and kitchen renovation to a more modern one will more likely cross your mind because you’ve seen amazing pictures online.
Even without getting rich, you want to stay at your current level, not a lower one. We value convenience and want to raise our standard of living, and paying a higher and higher price for it is natural for us. We explain it to ourselves as needs, even though they are actually...whims.
Better home decor? We are moving with the times! In fact, we do up the apartment to a higher standard to match the new neighborhood, our neighbors or at least our aspirations. It’s not necessarily because we feel bad in the old one, or at least not always. It depends on the comparative scale.
How do you beat lifestyle inflation?
When lifestyle inflation gets you, you stop looking at prices. You don’t have to be a scrooge anymore, you can finally live a better life, at least a little bit... And rightly so! In fact, you should make your life more comfortable to feel better. Yes! Do it! Go ahead! But – exercise moderation and increase comfort slower than you increase your earnings.
You don’t have to spend your entire raise right away. If so far you have managed for e.g. 5,000 zlotys per month, you will manage also for 5,200 zlotys. It’s not like not spending your entire paycheck after the raise (5,500 zlotys), you will suddenly starve. You’ve already managed for less. In theory, it should even be easier for you to save. In practice, this varies and is true regardless of the amount.
It’s easy to surround yourself with new luxuries and get used to their constant presence. It’s easy to live more lightly. It’s much harder to go back down and get rid of what not long ago was a luxury and today is the norm. Never take for granted what you have now. A lot of people thought they had a secure and well-paid job, and then someone ate a bat and half the global economy came to a halt.
Saving is not sucking the joy out of life and putting it in a deposit. It’s about thinking rationally about your own abilities and eliminating what’s unnecessary. Thinking about whether the expenses you incur are actually needed, or if you simply need to pay them. Or do you not have to at all?
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