How to Build Wealth Whilst Avoiding Lifestyle Inflation

Lifestyle inflation may be a term you are unfamiliar with but it is something many of us fall victim to without even realising it. As you grow your wealth and your investment portfolio, will you succumb to lifestyle inflation?

avoiding lifestyle inflation

Let’s find out how you can avoid it and still enjoy the benefits of your hard work. 

In this article we will discuss: 

  • What is lifestyle inflation? 
  • Why does it matter?  
  • Why does it happen? 
  • How to avoid lifestyle inflation. 

What Is Lifestyle Inflation?  

Lifestyle inflation refers to what happens when an individual’s income goes up and with it their spending habits also increase. With each raise or influx of income, you spend more, perhaps without even realising it.

It is natural to think that your money worries are reduced as you earn more, however, it is very easy to overspend and actually end up in more financial difficulty.  Without proper financial planning and awareness, you can quickly fall into living paycheck to paycheck despite earning a higher salary.  

Why Knowing Lifestyle Inflation Matter? 

The reason understanding lifestyle inflation matters is that if you do not stay aware and on top of your spending, you can quickly end up spending more than you make.

This means that instead of growing your wealth as you advance your career or investment portfolio, you can end up in debt and unable to meet loan repayments. This can then impact your long-term financial goals and retirement.  

What Causes Lifestyle Inflation? 

Lifestyle inflation most commonly occurs when individuals graduate from university and begin earning a larger salary or following a job promotion or raise in salary. Most often, these individuals have lived more consciously and followed a budget prior to this.

This sudden rise in income is new and exciting and as a result, can be accompanied by some poorly thought-out purchases and spending. Things that were once considered a luxury, become commonplace and considered a new necessity for day-to-day life.  

Following a budget seems unnecessary and watching your bank account can seem pointless, however these financial habits should not be so easily discarded.  

Lifestyle inflation refers to what happens when an individual's income goes up and with it their spending habits also increase

How Can I Avoid Lifestyle Inflation?  

The best way to avoid lifestyle inflation is to continue to live to a budget and seek advice from a financial advisor before committing to any large purchases or investments. Some other strategies to build your wealth and avoid lifestyle inflation include: 

Re-visit Your Budget Regularly 

An increase in your income is great news but it will also come with an increase in tax, meaning your take home pay might not be as much as you expect. It is important to assess what the actual increase is after all your tax and necessary expenses such as rent/mortgage, bills and debts are taken into account.  

Automating Your Savings 

Having a portion of your salary automatically debited and sent to a savings account is one of the most effective ways to stay on top of your financial situation. This ensures you never spend your savings in error and always have money set aside for emergencies or unexpected bills.  

Set Financial Goals  

Set a goal for your savings account balance and reward yourself only once you reach that goal. Anything that is a wantmore than a needshould wait until you reach your goal. Not only is this smart spending but it’s that much more satisfying to see your account balance rise, and it helps you avoid placing expenses on credit. Avoiding interest repayments is always a smart move!  

Plan Your Spending  

understanding lifestyle inflation

Making gradual, planned expenditures is beneficial when it comes to avoiding financial inflation. Jumping headfirst into a huge mortgage or buying an expensive car the minute your salary increases is ill-advised.

Absolutely, celebrate, but do this in a modest way until you can sit down and plan out your goals and ensure your spending won’t keep you from reaching them.  

This ties into setting financial goals rather than spending ahead of your means using credit and expecting to simply pay the balance when your salary comes in. You may quickly find you owe more than you make, especially after essential expenses are paid.  

Seek Help 

Without a doubt, one of the most effective ways to avoid lifestyle inflation is to invest in the expertise of a financial advisor. A financial advisor will help you take stock and plan out the best use of your wealth, ensuring you grow it intelligently, without overspending, while still enjoying a comfortable lifestyle.  

Collins Mann – Helping You Live A Life Of Choice, Not Compromise  

The fully qualified financial planners at Collins Mann can help you grow your wealth without risking lifestyle inflation. Through proven, carefully planned strategies, we can help you have your cake and eat it too!

We are passionate about helping our clients to live an abundant life without stretching your finances too far and falling into the trap of living beyond your means. Creating great financial habits takes practise and commitment. With our help, you can learn ways to make it easier on yourself.

When done thoughtfully, financial advice will in fact create additional financial security for you both now and into retirement. You need not sacrifice on the things you want; we will show you the path to the future you dream of.  

Should you require additional support to plan your retirement, transition to retirement, create and manage a SMSF or manage your wealthwe can expertly assist with this also.  

For avoid the risk of lifestyle inflation and easy to follow financial advice, contact Collins Mann today on 07 3251 3200.  


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