Lifestyle inflation could be the reason you’re struggling

WHAT is lifestyle inflation? Quite simply it’s when you increase your spending when your income level goes up, for instance, each time you get a salary increment. It’s a simple idea that when you make more, you spend more. 

You get a raise and you move into a bigger apartment, upgrade to a fancy car, buy a new smartphone and spend it on daily expenses that most often go unnoticed. 

But I’d like to challenge you to another simple thought: what if you flipped that notion on its head? That when you make more, you save more instead. 

When you spend more, the likelihood of landing yourself in more debt or financial uncertainty is a lot higher than if you were to save more money for long-term financial security. 

Not convinced? Consider this for a second. We know that the cost of living is on the rise and we’re all eager to see what comes out from Bajet 2018 to effectively control this. 

But aside from that, did you know the Malaysia Employers Federation (MEF) has reported that the average salary increase in 2017 is estimated at 5.3% for executives and 5.43% for non-executives. 

Inflation is floating between 3.6% to 3.9%, that only gives you a salary increase of 1%-2%. 

In effect, it’s really not a substantial increase to start living fancier lifestyle. Why not invest or save the difference? 

This goes out to all of us who cannot resist the short-term pleasures that experiences give us. Champagne brunch on a Sunday? Extravagant birthday dinners with sparklers in our cakes and KL rooftop view? 

Indulge every week? A sports car and a family car under one roof? 

Lifestyle inflation can be a good thing if you can afford to sustain your new lifestyle, after all, we should be able to enjoy the fruits of our labour. 

But here’s what you need to do to avoid falling into the debt trap. 

Ask yourself, can I afford this? Make sure the monthly expenses increase is one you can afford, don’t start living beyond your means. 

Ask yourself, is it worth the lifestyle inflation? If you’ve been living in a one-bedroom apartment and have two chlidren, perhaps an upgrade to a bigger home makes complete sense. But from a mansion to an even larger mansion? Perhaps not. 

Ask yourself, should I afford this? Just because you can afford it doesn’t mean you have to. 

Think about your long-term financial goals, such as saving up for a down payment on a house, and then assess whether that lifestyle upgrade you’re considering will keep you on track or steer you away from it. 

Ask yourself, what would Warren Buffet do? 

This billionaire investor would most likely tell you to invest the difference. Take your additional income and put it into a savings account, a retirement fund or why not consider P2P lending as an investment vehicle? 

Ask yourself, am I in debt? If yes, prioritise paying it down. 

Ask yourself, am I trying to keep up with the Joneses? If yes, then pause for a second and start from the top all over again. Can you afford this? Is it worth the lifestyle inflation? Should you afford it? Can you gain more from investing it? Are you in debt? 

“Too many people spend money they buy things they don't impress people that they don't like” - Will Rogers

Nadia Khan is content manager of, dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, personal loans and broadband plans in Malaysia.

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