How to Combat Lifestyle Inflation When You Get A Raise

Everyone loves getting a salary raise. The feeling of joy and accomplishment that comes with that raise make all those extra hours spent at the office worth it. At some point in your career, you might have thought about what you’ll do when you get a raise. Perhaps you envisioned that you wouldn’t be living paycheck-to-paycheck anymore and could finally start saving towards your big life goals such as buying a house or retirement.

But the reality is, getting a raise typically leads you to spend more money now. You go out for dinner more often, take an extra trip or two a year, or rent a nicer apartment. This increase in overall spending is called lifestyle inflation.

Comfort now at the expense of a less comfortable future
Lifestyle inflation may make daily life today more comfortable but on the flip side, it doesn’t make achieving your long-term financial goals any easier. You’ll still need to retire at the same age, or still need to save up to buy your dream home.

Rather than let lifestyle inflation creep up on you, manage your raise by being intentional and strategic about where each extra dollar goes. Sure, you’ll have a more enjoyable life day in day out if you spend your money now, but it doesn’t materially improve your future. Let’s look at how to keep lifestyle inflation in check so you can invest more towards yourself and your future.

Pay down your debts and don’t succumb to peer pressure
Firstly, let go of the notion that you need to buy more things to keep up with your peers. Instead of playing the game of keeping up with the Joneses, use your salary raise to pay down your debts quicker (if you have any). Then, save and invest that hard-earned money towards your long-term goals, and even, get to those goals sooner.

Just because you earn more, doesn’t mean you don’t have to budget
As you earn more money, continue to think about where you’re allocating that money. Don’t overcomplicate how you allocate your new salary. Let’s say you’ve earned an RM1,000 raise. You can start by putting an extra RM500 a month towards retirement, and RM250 towards your home downpayment.

The additional RM500 a month contribution to your retirement investment may not seem like much, you might even be tempted to spend that money on a plane ticket to Bali instead. But consider this; your RM500 a month can grow to RM1,000,000 in 45 years. A small decision like that can have an enormous impact on your future.

Don’t forget to treat yourself
With the remaining RM250, you can reward yourself for working hard. Rather than succumbing to lifestyle inflation and spending the full RM1,000 raise, you’re only increasing your monthly spending by RM250. This way, not only do you still get to enjoy a more comfortable life now, but part of your raise also goes towards giving you a better future. When you split your new raise this way, you won’t feel guilty about spending some money on new clothes or eating dinner out more.

Stay in control of your financial destiny, don’t let lifestyle inflation control you.

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Photo by Obi Onyeador on Unsplash