In a highly connected and small city like Singapore, it gets interestingly easy for news to break out, and similarly for comparison to take place between people around us.
The phrase “Keeping up with the Joneses” has become seemingly true especially in a highly competitive environment in Singapore, where we are termed as ‘Kiasu Singaporeans’
With the use of social media, it just accelerates inflation. No, not the typical inflation that we are used to talking about, but –Lifestyle Inflation.
What is Lifestyle Inflation ?
Ever seen this kinda meme circulating around these days ? This can be a simple illustration of what lifestyle inflation actually means. When your income increases, so does your expenses.
We all know the importance of saving more, investing more and maintain else reducing our expenses as our income increases. But why do most of us still fall into the trap of lifestyle inflation ? Let’s find out!
Road to Lifestyle Inflation
So you had a pay raise, but you seem to still be saving the same each month compared to where you were 6 months ago. The numbers don’t add up! Hmm.. where could it go?
This might be a sign of lifestyle inflation. But, of course, upgrading our lifestyle is what most of us should be working towards, improving as we move on from one stage to another stage of our lives, however, the problem comes when we inflate our lifestyle mindlessly and spend on things that we should not.
1. Keeping up with the Joneses
With such an interconnected world that we live in, media content that pays millions on marketing, it is never hard to feel the need to get the latest and greatest things in life.
We start comparing ourselves with the people we know, or the influencers that are paid online. The newest phone or the latest car model may not be wanted anymore and so we thought it is a need for us.
The increase in pay raise may also mean one level up the level in our workplace. We may start associating ourselves with the ‘Joneses’ that we newly join into. We may feel the need to keep up with them and so we make impulsive decisions.
2. “If not now, then when?”
“Let’s YOLO, now Is the time”
Especially when we are young, we tend to feel that now is the time, the time to enjoy and the time to do whatever we had been wishing for.
“Going on an intercontinental trip? Let’s do it now!” “Getting the fastest new car? Yes! I could easily settle the down payment and take a loan easily”
When we start earning more, it also means we afford to spend more and take on more loans and leverage on it.
It can be a tool, but if used wrongly, can also be deadly.
3. Neglecting the Basics
Many might have forgotten the basics – Financial Basics such as budgeting and keeping track of our expenses.
With an increase in our pay, many may feel that they became boosted and money doesn’t seem to be a headache anymore. However, the truth is that the basics of saving, investing and allocating based on our needs and wants still apply.
How can we Avoid It ?
Now that we know the dangers and traps of lifestyle inflation, let’s see how we can avoid falling into the trap of lifestyle inflation.
1. Knowing your weaknesses
Everyone has got their weaknesses. Just like individual wants and dreams, we all have our own set of ‘lifestyles’ that we dream of when we ‘make it big’ or when we ‘HUAT’
It might be a lifestyle of going on high teas, buying new gadgets or spending on new cameras. It can be anything but always know your weakness and set a budget for it as soon as you get a pay raise or receive a bonus for instance.
2. Play It safely and don’t over-leverage, yet
An increase In our income, also means we can get to take up more loans and higher credit. We may be tempted to take on more credit to splurge a little more or take on higher leverage to upgrade our lifestyle a little.
But what if things aren’t stable in the months or years to come and you lose your job or receive a pay cut instead?
It might be better to take this chance to play it safe and invest or save a little more before taking on more leverage in the future.
Do you think the richest man in the world like Elon Musk doesn’t have a budget? The fact is that he certainly does! One that is even stricter.
Anyone should have a budget, no matter their income. With a pay raise, it is typically easier to maintain our savings and investment portion as before but increase our expenses with the additional income that we are receiving.
However, by sticking to our budget, at the least we can maintain the same portion (by percentage) towards our savings, investments and expenses. At least our increased income can still be evenly distributed into our budget.
Lifestyle Inflation
Let’s face it, we all will have gone through lifestyle inflation at some point in our lives. It can also be a good thing to be going through one. It means that we are progressing in life with greater buying power.
However, it can be detrimental to us when we neglect the basics of our financial health totally.
Be it a pay raise, receiving our performance bonus or even as we step outside the workforce as we transit from students to an employee, we may not know what to do with the excess money other than spend it.
Fret not, if you are looking for ways to save or invest, or even build a fund for your future family or self, chat with us today for a non-obligatory session
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Learning about financial literacy can also be fun and easy! Stay with us in this financial journey one post at a time to find out how! If you haven’t already, you can check out our other work down below too, happy learning and reading!
Fighting Inflation