Lifestyle Inflation: Robbing Tomorrow to Pay for Today

August 21, 2015 at 12:00 am Advice, Featured Articles
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It is Parkinson’s Law that says “The amount of work expands to fill the time available”, and the same idea could be adapted to money: the more you earn, the more you spend. This may sound obvious, but it’s surprising how easy it is for your expenditure to mushroom to fill the amount you get paid, even if you’ve had several pay rises. This is known as Lifestyle Inflation, and it can leave you feeling as broke as ever, even with a high paycheck and a more lavish lifestyle.

One example of this effect is upgrading your accommodation after a promotion. You might now be able to afford the extra rent or mortgage payments, but along with a larger dwelling on a piece of prime Philippines real estate, you have to deal with more expenses, such as larger heating costs, more maintenance, and so on. Within no time at all, you’ve used up all of your money, including your pay raise, on inflated living expenses when your old apartment suited your previous lifestyle just fine. The same goes for buying a newer and fancier car – your fuel, repairs and insurance costs will increase along with the down-payments, eventually costing more than you bargained for.

Of course, it’s natural to want to enjoy the fruits of your labors, but remember: every peso you spend today isn’t available to finance your future. While that might not seem important to you now, some years down the line when you need a retirement income, the lavish expenditure of youth might not seem as worthwhile.

Some increases in expense may be necessary, for example a larger house when starting a family. But in every situation, ask yourself if it’s a good use of your money – do you need to spend this, or just want to?

It’s a lot easier to increase your spending when finances permit than to rein it in when circumstances demand. If you can stay clear of Lifestyle Inflation, it will not only provide a buffer against any future drops in income, it will also allow you to save for a more prosperous future without feeling you’re depriving yourself. You’re not cutting back on spending; just try not to let it increase out of control!

Tips for Avoiding Lifestyle Inflation:

– Pay as much attention to your budget as when you did when you had less money. This doesn’t mean miserably obsessing over every little bit you spend. You should be aware that a peso is still a peso, however much you’re currently earning. It shouldn’t be frittered away unnecessarily.

– Set up a savings plan to automatically take some of your wage every month as soon you get it, and increase this amount by around a half of any pay rise you receive. You’ll still be enjoying the raise, while saving up for your future. This is definitely a win-win situation.

– Even better, put these savings into a pension plan or other restricted access investment so that you’re not tempted to claw some back to spend on frivolous luxuries.

Everyone would like a pay raise, and it would be overly cautious and self- denying not to enjoy the benefits of one if you receive it. However, with a little thought and planning, each pay raise can benefit you in the future as well as in the present.

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