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In my previous post, I discussed managing a household budget with irregular income. Today, I’ll wrap up that topic. I don’t want you to equate saving with deprivation, because that’s not what it’s about at all, even though most people mistakenly think so. I want you to be able to react if this situation arises and understand why it’s necessary to do so.
What is lifestyle inflation?
Standard inflation is what you hear about in the media. In short, it’s the rise in the prices of goods and services. In Poland, inflation is calculated by the Statistics Poland (GUS), which periodically adjusts the composition and weighting of the inflation basket. We won’t be focusing on that today, although the two phenomena are very similar.
Lifestyle inflation is 100% about you. It’s the phenomenon of increasing your spending as your income grows. Since you’re earning more and have more funds at your disposal, you want to treat yourself. And there’s nothing wrong with that, as long as you can set a safe limit for yourself.
If you’ve been scrutinizing every penny before spending it until now, you might feel it’s high time to loosen the purse strings after getting a raise. After all, it’s extra cash, and a small reward never hurt anyone. The problem is that it doesn’t end with a small reward. Often, the entire new salary amount is used up. A 500 PLN raise doesn’t turn into a 100 or 200 PLN reward with the rest being saved. Everything gets spent.
How to beat lifestyle inflation?
When lifestyle inflation hits, you stop paying attention to prices. You don’t have to be a miser anymore; you can finally live a little better... And rightly so! You should even improve your quality of life to feel better. Yes! Do it! Go ahead! But—keep it moderate and increase your comforts more slowly than you increase your earnings.
You don’t have to spend your entire raise right away. Since you were managing on, say, 5,000 PLN a month until now, you’ll manage on 5,200 PLN too. It’s not like you’ll suddenly starve if you don’t spend your entire paycheck after a raise (to 5,500 PLN). You were already managing on less. In theory, it should even be easier for you to save. In practice, it varies, 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 an increasingly effortless life. It’s much harder to go back down and get rid of what was a luxury just a short while ago but has now become the norm. Never be too sure of what you have now. Many people thought they had secure, well-paying jobs, and then someone ate a bat, and half the global economy came to a standstill.
Saving isn’t about sucking the joy out of life and putting it into a savings account. It’s about thinking soberly about your own capabilities and eliminating what is unnecessary. Consider whether your current expenses are actually necessary, or if they are just there and you feel you have to pay them. Or maybe you don’t have to at all?
Why we succumb to it
As individuals, people crave growth in every sphere. We want to rise higher, not lower our standards. It’s clear that you want a better life. Have you ever thought, “Oh, I’m earning so much, it’s high time I became a bit poorer”? Of course not. You’re more likely to think about a raise and renovating your kitchen to be more modern because you saw some amazing photos online.
Even without getting richer, you want to stay at your current level, not a lower one. We value comfort, we raise our standard of living, and paying an increasingly higher price for it feels natural to us. We justify it to ourselves as needs, even though, in reality, they are... whims.
Better home decor? We’re keeping up with the times! In reality, we’re adjusting our home to a higher standard to fit in with a new neighborhood, neighbors, or at least our own aspirations. Not necessarily because we feel bad in the old one, or at least not always. It depends on the frame of reference.
What’s more, it’s very easy and quick to get used to it. I repeat, there is nothing wrong with rewarding yourself for your results, but regular spending on whims eventually stops being a reward and becomes an everyday occurrence that you get used to.
This can happen to anyone
Lifestyle inflation can affect anyone who suddenly comes into money without knowing how to manage it. It starts with a "now I can afford anything" spending spree, coupled with the baseless assumption that the good times will last forever.
No, they won't. It plays out just like those cheesy Hollywood movies with a moral lesson. First, we see a protagonist struggling through a tough life, only to achieve success through sheer willpower and hard work. But it only lasts a moment before they lose everything and hit rock bottom, where they rediscover what they lost along the way: true values like friendship, family, and so on. Then they realize they had what truly mattered all along. They hug their spouse at sunset, some uplifting music plays in the background, and that's a wrap... Give them the Oscar!
The thing is, real-life stories don't work that way, nor do they follow that path. They usually end in broken families, bankruptcy, and massive debt. This trajectory affects everyone, from local thugs and mid-level businessmen to world-famous superstars.
- Diego Maradona
- Mike Tyson
- Elton John
- 50 Cent
- Burt Reynolds
- Nicolas Cage
- Johnny Depp
- Wesley Snipes
…do these names ring a bell? I think they do. Each of these people (and there are many more) either officially declared bankruptcy or was on the verge of it. Only some of them managed to get out of the trouble they brought upon themselves.
If poor asset management and living for the moment can lead to trouble even when earning millions a month, do you really think it won't happen on a smaller scale?
How to beat lifestyle inflation?
When lifestyle inflation hits, you stop paying attention to prices. You no longer have to be a penny-pincher; you can finally live a little better... And rightly so! You should even improve your quality of life to feel better. Yes! Do it! Go ahead! But—keep it moderate and increase your comforts more slowly than you increase your earnings.
You don't have to spend your entire raise right away. If you were managing on, say, 5,000 PLN a month until now, you will manage on 5,200 PLN as well. It’s not like you’ll suddenly starve if you don’t spend your entire paycheck after a raise (5,500 PLN). You were already managing on less. In theory, it should even be easier for you to save. In practice, it varies, regardless of the amount.
It is easy to surround yourself with new luxuries and get used to their constant presence. It is easy to live an increasingly effortless life. It is much harder to go back down and get rid of what was a luxury just a short while ago but is now considered normal. Never be too sure of what you have now. Many people thought they had secure, well-paying jobs, and then someone ate a bat and half the world's economy came to a standstill.
Saving isn't about sucking the joy out of life and putting it into a savings account. It’s about thinking soberly about your own capabilities and eliminating what is unnecessary. Consider whether your expenses are actually necessary, or if they are just there and you feel you have to pay them. Or maybe you don't have to at all?
Why we give in to it
As individuals, people crave growth in every sphere. We want to rise higher, not lower our standards. It’s clear that you want a better life. Have you ever thought, “Oh my, I’m earning so much, it’s high time I became a bit poorer”? Of course not. You’re more likely to think about a raise and renovating your kitchen to make it more modern because you saw some amazing photos online.
Even without getting richer, you want to stay at your current level, not a lower one. We value comfort, we raise our standard of living, and paying an increasingly higher price for it feels natural to us. We justify it to ourselves as needs, even though, in reality, they are... whims.
Better home decor? We’re keeping up with the times! In reality, we are adjusting our home to a higher standard to fit in with a new neighborhood, neighbors, or at least our aspirations. Not necessarily because we feel bad in the old one, or at least not always. It depends on the scale of comparison.
