Lifestyle Inflation: A Call For An Action
When you get your work bonus, were you thinking about what things to buy? When you expect to get an income tax return, were you so eager to set your vacation trip?
It looks like regardless of the amount of money you’re getting, you still find it hard to settle your bills. In this manner, you might be subjected to lifestyle inflation. Though you’re overspending without knowing, this will eventually become your spending habit. This is dangerous as it might go out of control.
In this guide, we will give you a clear picture of whether it’s something you want or something you want to break. This guide will serve as your call for action.
What is Lifestyle Inflation?
Lifestyle inflation refers to the aspects wherein an individual tends to increase the amount that they spend as they increase their income or at times when they get more money. People for instance who got a raise from their current job will likely increase a bit on their spending. When the pace of their spending keeps rolling with the increased in income or even exceeding the amount, lifestyle inflation is likely to occur. This means that regardless of how much dollars they’ve got, there’s never a dollar left nor invested for emergency fund or to save money.
In some cases, lifestyle inflation occurs when people do not perceive cutting back expenses on small things or their latte factor. Also, it happens when they tend to go beyond their means on non-essential things.
Why is It Dangerous?
Lifestyle inflation may be harmless, particularly if the amount that you’re spending does not exceed your net income. However, the alarming notion is that most people who inflate in terms of their lifestyle do not have sufficient savings. They haven’t think of investing on RRSPs or setting the money for their emergency fund. This could have been a good practice to prepare for retirement or in cases of emergencies.
Moreover, people who are not living within means are sure to face the consequences when financial challenges occur. This is because there is no money save for this unexpected shortcomings. The worst scenario would be trimming budget just to stretch out what’s left. While this could have been prevented, if you’re able to save more money that you can use when you suddenly need to pay for medical expenses for example.
Additionally, prolonged lifestyle inflation can lead to stress due to obligations that have been taken for granted early before. This is especially perceived as you approach retirement without any savings to suffice your financial needs.
Things You Can Do To Avoid Lifestyle Inflation
If you realized that you’re subjected to lifestyle inflation, the following are the things that you can consider to resist it.
1. Live Below Your Means
If you want to break lifestyle inflation, all you need is to live inferior to your means. An easy way is spending less and save more. Ideally, it is good to save 10% to 20% of your income. You can either open a TFSAs or Tax-Free Savings Accounts, or invest in RRSPs, and if you favor starting to build your emergency fund. If you live not just within your means but below your means, it is possible that you can save more than 20% of your income.
2. Celebrate and Then Save
If there’s an increase in your income, you might think of celebrating, well there’s nothing wrong though; but, you just have to make sure that after you celebrate, your focus should be on saving. In fact, you can still save while dining out with your family. Besides, saving, after all, is your transport for a financially stable future.
3. Automate Your Savings
Having more money setting in your account is truly tempting. One way to ensure that you don’t forget saving it and assure that your savings are secure, you can automate your savings. By automating your savings, the money will be automatically transferred to your investment account, TFSAs, or RRSPs, or any savings account you may have on purpose. Over time, this will help you avoid the temptation of treating your savings account as your personal checking account.
4. Get Financial Advice
If you’re somehow in doubt and confuse if your decision towards spending is justifiable with how much is your income, you can consult a financial expert to help you evaluate your financial capacity and situation.
5. Avoid Cues
If you think that your habit of spending is triggered bu some cues, then you must avoid these things to provoke you with spending. For instance, going to the mall or supermarket for your weekly groceries, to avoid buying things that are not necessary, might as well list down the items that you need to buy and stick to your list. By doing so, you can shun buying things that are not really needed.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
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