While many people are financially conscious as they embark upon a new career or make major life changes, they often neglect fiscal responsibility as their situation improves. Studies indicate that, as lifestyles inflate, so do living expenses. While a budget for luxuries was comfortably set at a certain amount, an increase in income often results in a higher budget for such items, though the old one was once sufficient.
Lifestyle inflation™ happens for a variety of reasons, many of which are unrelated to need. As people around you begin spending more money, you will likely follow suit if you are able. You may find yourself wanting items that are nicer—cars, homes, and vacations that are higher priced than those you once coveted. You may also feel that your hard work justifies your purchases—you earned this money, after all.
While these purchases satisfy a temporary need for such items, lifestyle inflation can be damaging to your overall financial portfolio. Clothing and living space may need to be updated to accommodate growing families or new positions, but money being put toward these other expenses may be better served in your Jason Hartman-approved investment portfolio.
To avoid these financial pitfalls, think about how you spend your money. Having the money to spend doesn’t necessarily mean that it should be spent. When you make extra, save or invest extra and watch your money grow. Avoid accidentally living paycheck to paycheck by keeping your budget in check—live comfortably, but not extravagantly.
Remember that people who end up in debt aren’t always those who make little money—often, they’re on the higher end of the income scale. People who mismanage their money, no matter the amount, are those that struggle to make ends meet. If you’re making $200 per week or $2,000, you’re still at risk. The percentages of income spent to income saved should (at the very least) remain the same.
Sound financial planning will ensure that you’re able to live comfortably now and in the future. By considering and planning for lifestyle inflation as your income earning potential is raised, you’ll have more money to pour into investment portfolios that are sure to pay off later!
How has your budget fluctuated as your income has? Feel free to share any helpful tips on how you’ve succeeded (or failed) in the lifestyle inflation department below! (http://www.flickr.com/photos/iainpurdie/4424602673/)
The Young Wealth Team