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Lifestyle inflation: Being happy with less

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(Photo: Jordan News)
Many cultures, ideologies, and religions share an underlying theme that people should be grateful for what they have. This principle lies in a dichotomy between being grateful and content with what we have and pursuing our goals and dreams to satisfy our wants and desires.اضافة اعلان

In all actuality, people find it difficult to be happy when their desires are unmet. As a result, a pragmatic solution has been developed throughout human history to find a balance. This unwritten rule has been used for ages and is still practiced today: spending only what you can afford.

Although nothing is particularly wrong with this statement at face value, the practical application of this practice can lead to disaster for our financial wellness due to what is called lifestyle inflation.

What is lifestyle inflation?

Lifestyle inflation is the result of increased spending due to an increase in your earnings. Most people starting their young adult lives have to sacrifice most, if not all, of their desires and wants to meet their basic needs. Over time, as individuals get better-paying jobs, raises, or bonuses, they will naturally begin to reward themselves with the wants they had to sacrifice.

Although there is nothing wrong with treating yourself occasionally, it will result in lifestyle inflation if this practice is maintained.

At first glance, there may not seem to be an issue with increasing your spending as your earnings increase, but a deeper look into finances will suggest otherwise.

No matter how much you earn, you should constantly be setting aside money as savings. The savings can serve a variety of functions including retirement, relocating, or a rainy-day fund.

Lifestyle inflation becomes especially detrimental to your financial wellness if your savings decrease from when you were earning less. Conversely, adding to or changing your lifestyle can drastically increase costs in the long term and ultimately lower the amount of money that goes to your savings.

When discussing long-term effects, these changes can still cost you after your initial purchase. The classic example of this is cars. People who earn enough will gladly pay 50k on a Mercedes or other luxury car, but at this point, it becomes a want rather than a need.

The difference between a car that costs 20 thousand and a car that costs 50 thousand is wholistically minimal when discussing its purpose: transportation. Furthermore, both vehicles will incur costs later in the vehicle’s lifetime. Cars depreciate in value, and parts to repair or maintain can act as a money pit.

While cars last a long time, human life lasts even longer. When it is time to eventually retire, most people would like to maintain their lifestyle. To do this, the amount of money going to savings should be proportional to the amount earning, if not more.

How to avoid lifestyle inflation:

When it comes to lifestyle inflation, it can be argued that no one understands this concept better than American financial guru Dave Ramsey.

Ramsey had a very humble upbringing but, by the age of 26, was earning almost a quarter-million dollars a year. After a couple of years of debt and poor financial lifestyle choices, he lost everything and had to file for bankruptcy.

Since then, he has pulled himself from financial ruin the right way by learning financial responsibility. He developed Ramsey Solutions as a way to educate others on how best to manage their finances and improve financial wellness.

The three best pieces of advice he has for financial inflation are not to spend just because you can afford it, do not try to keep up appearances just to seem rich, and to budget your finances.

For more information on improving your financial wellness, check out his website, where he developed what he calls “Baby Steps,” a seven-step process to improve and maintain your finances.

He also has a plethora of other information regarding finances that can be used and applied to your daily life regardless of age or financial background.

Being happier with less:

Here in Jordan, financial wellness can be challenging to achieve. Earnings are too low, and costs of living can make saving difficult.

Regardless of your financial capacity, a healthy mindset is essential. Being grateful and content with the things provided to us is fundamental to our satisfaction with our financial situation.

It is human nature to be dissatisfied, but ideologies can help remind us of why we should be grateful and how to exercise it. Tying practical solutions and ideological practices to finances can help to further promote financial wellness in the long run.

Read more Lifestyle

Sources:
https://www.ramseysolutions.com/budgeting/lifestyle-inflation
https://www.forbes.com/sites/kristinmckenna/2020/06/22/the-true-cost-of-lifestyle-inflation/?sh=7d5c9e032423