When folks get more money from work or their hustle, many are quick to think, “Now I can buy all those things I couldn’t afford before.” My GenZ buddies would say, “I can’t come and go and kill myself.”
What’s interesting is, that research shows that when people get a pay raise, they often splash out on luxury stuff that could end up being more trouble than they’re worth. They tend to seek happiness, spending on things that make them feel good rather than saving the extra cash.
Resisting the urge to upgrade your lifestyle when your income goes up can be a smart move for the long haul. While it’s tempting to go on a spending spree and up your expenses as your income grows, there are good reasons to hold back and secure your future.
Let’s chat about some key points this weekend. Lifestyle inflation means as your income rises, so do your spending habits, which can create a cycle of high expenses. This pattern can hinder your ability to save and reach your financial goals. By resisting the temptation to splurge, you can put more money into savings and investments.
Usually, when unexpected income comes, unexpected expenditures follow it. It is called Parkinson’s Law. The law says that expenses will always rise to meet income.
Buying things you were not even thinking about now seems like a do-or-die affair.
You must constantly fight this pressure.
Upgrading your lifestyle to the increase in income is a trap, don’t fall for it. You end up being in a cycle that never ends.
Instead, see this as an opportunity to create an emergency fund account. Make it an account with no debit card, no cheque-book, and no means of transfer or withdrawal for a period of time to meet your long-term financial goals.
Save every increase you get as income or a gift. Do not blow your salary increase. Try not to adjust or upgrade your standard of living immediately. Save up the difference.
Remember that life is unpredictable, and unexpected expenses can pop up anytime. Having an emergency fund can shield you from debt or financial troubles. By not rushing to spend that extra money, you can create a safety net that can cover unforeseen situations.
Another benefit of avoiding lifestyle inflation is paying off your debts faster. If you have loans or credit card debt, using that extra income to clear it off can be a big win. Paying off debts not only reduces the interest you may owe over time, but this will also boost your credit score and will free up your finances.
Saving and investing the surplus income can lead to greater financial security and wealth accumulation. If you hold off on spending the extra cash, you can invest it in assets like stocks, bonds, or real estate that can yield better returns in the long run. Starting to invest early allows your money more time to grow, thanks to the power of compound interest.
As your financial coach, I will keep showing you ways to save money, plan for your retirement early, and work with you to meet your financial goals. And as we countdown to the end of the year, look out for nuggets to abide by for year-end.
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