Also called lifestyle creep
As our income increases, we feel that we can afford more expensive things. So we buy them, thinking that we have earned it - we deserve it.
Maybe nicer clothes, bag, car. Eat at fancier restaurants. Etc, etc.
I think it is good to be able to enjoy the labour of our hard work. I want to enjoy life.
But it is also important to do it with the right intent. I should not do it to impress others. There is no end to it. I can never keep up with what the people in “social media” circles are spending.
“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.” – Will Rogers
However, even if I do it just for myself, I should not sacrifice future growth for the sake of present enjoyment. I need to strike a balance between present value and future value.
When income increases, before I increase spending, I need to think first about my priorities.
Previously I wrote about my framework for How to save.
Following this framework, “non-essential spending” ought to be the last category to increase. Especially recurring spending - if it is non-essential, I need to be wary of it.
When income increases, I want to increase savings also.
Retirement may cost more than initially thought. And with all the uncertainties and risks in the market, it is better to be conservative, if possible. Read Can we afford to retire? and Impact of inflation.
Following this framework, “essential spending” ought to have been covered even before the earning increase. So technically it ought to stay flat.
But if we have debt payment, then this is one essential spending that we want to increase also. It is preferable to pay off debts as soon as sensible, starting with the highest interest debts.
I know that in real life, things are not so simple. Life necessity can be complicated at times. But I believe with the right intent and self-discipline, it is possible to contain lifestyle inflation and channel the increase in income to productive benefits. For the sake of the future.
Have a great day.
Additional reading: There are many articles on the internet that address lifestyle inflation. Ones that I like from my internet search was this one from Rachel Cruze and this one from Jean Folger. But look around for what works for you.
Disclaimer: Anything I share is not intended as financial advice; I am merely sharing personal opinions and experiences. The information is of general nature and you should only use it as a place to start your own research and you certainly should do your own due diligence. You ought to seek professional financial advice before making any decisions.