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What is Lifestyle Inflation?

By the Paise Sherpa

Consider this - you have just started your first job, and you have to manage with a meagre salary of Rs. 25000 a month. With statutory deductions, rent, fuel expenses, food expenses, the occasional movie or eating out, other discretionary spends you are left with Rs. 4500 every month. Saving money, investments, retirement planning are a distant memory. 

Years later, you are celebrating your 40th birthday (at a 5-star restaurant of course) and after all the celebrations you wonder how you will manage after you retire. Now after so many years of slogging and a decent package, however you are still left with very little money at the end of the month. You realize that after working for 15 years you haven’t even begun saving and investing for your goals yet to begin. Sounds familiar? 

According to a recent RBI study, more than 100 million Indians are going to face a similar predicament in the coming future. 

Well how could this be? 

Lifestyle inflation (or lifestyle creep) is the gradual increase in your spending as your income grows. This increase is generally seen in discretionary spends - non essential items or luxuries. Earlier, you used to have dinner with friends at the favourite restaurant; now you book a table at a 5-star restaurant. Earlier coffee at any roadside thela was fine, now only Starbucks will do. A new feature phone is in the market; well, you must have it despite it being priced more than Rs. 1.5 lac and your existing phone is merely a few months old. 

"Upgrading" is a big feature of lifestyle inflation. You want a bigger car, or move into a larger house. Purchases are less utilitarian and more hedonistic - less for solving a problem and more to satisfy esteem or prestige needs. This is an "inflation of wants". 

Despite earning more, you feel like they have less financial freedom - you have the same amount of savings every month as you did when you first started working. This is a gradual, subconscious change in spending habits. 

These increasing lifestyle needs are driven by pop culture and the ever-increasing neuro marketing (marketing targeting your brain) which makes you want things that you really do not really need or you don't want to miss out. (to understand the reasons read - 4 Reasons you are broke)

There are ways you can take to not fall in this “lifestyle ladder” trap. 

1. Set a target of a lifestyle you (you here means you and the spouse - this decision affects the whole family) want and once you achieve that lifestyle, don't chase the next higher lifestyle step. You can't feel sad when you see Hardik Pandya wear a 7 Crore watch in a cricket match! 

2. Try not to be influenced by others opinions or way of living. You are you, don't change to impress others. 

3. Look forward to meaningful experiences instead. Spend on vacations, safaris, adventure sports, hobbies, music and other art shows, etc. 

Won't get too preachy here; we will do another full post on ways to avoid lifestyle creep. But hope you get the idea. 



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