The Dangers of Lifestyle Inflation

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When a person receives additional income, he or she finds plenty of opportunity to buy the stuff or even do the things he or she was not able to do before. People’s various spending budgets and habits greatly affect wealth building.

When you tend to increase your spending following an increase in income, it is considered as lifestyle inflation. This post would try to scribble down the dangers of lifestyle inflation and how it can ruin your finances.

What is Lifestyle Inflation?

The typical example of lifestyle inflation is when an employee receives additional salary. If the employee is able to fit the previous salary with his or her lifestyle, then the newly added amount must serve as a buffer for his or her future financial needs. But, what usually happens is that the employee tries to splurge all of his or her funds even with unnecessary things which are later regarded as necessities, even when not.

Lifestyle inflation is what causes people to live paycheck to paycheck, have insufficient cash and be financially unprepared for unforeseen events such as health issues or future job problems.

Why Lifestyle Inflation Normally Happens?

Each time a person’s income increases, the tendency is that person will increase with his or her spending, too. They normally think that the additional income allows them to pay for anything that can make them feel happy and satisfied in life.

They feel like they deserve to spend since they have been industriously working hard for the money. It is often called as entitlement factor. However, it is part of human nature to be discontented in almost anything.

Experts say that humans are conditioned to search and long for more. It is human instinct to desire for finer and better things every time we are presented with an opportunity. Moreover, another part of human nature is to yearn for improvement especially with one’s present economic or social status.

Comparing your own lifestyle and spending habits with the others give you a sense that it is either you are greater than them or you are inferior compared to them. The feeling of becoming better off compared to your peers gives you the sense of satisfaction which leads to more and more spending even with unimportant things.

Yes, there is nothing wrong with rewarding yourself especially after working so hard and passionately, however, if this behavior goes uncontrollable you may find yourself losing your hard earned money and failing to putting them into good use and building your own nest egg.

How to Avoid Lifestyle Inflation?

Self-control is indeed difficult to achieve especially when a person is really interested to have something in possession. To avoid lifestyle inflation, you may opt to follow the following tips:

  • Establishing spending limits and saving goals
  • Automating your savings to make sure that it goes straight to your bank account
  • Avoiding making unnecessary purchases even if you receive a raise
  • Making plans for your additional money
  • Putting the money to further shape your finances


When you become successful in avoiding lifestyle inflation, you are considered to be closer to achieving financial independence even at a young age. Increasing your spending every time you get the additional amount of money does not help you. In fact, it makes you stay in debt, causes you to get stuck in a work-spend scenario and prepares you for nothing, like your life after retirement.

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  • Lifestyle inflation
  • lifestyle upgrade
  • spending habits
  • saving habits
  • salary increase
  • entitlement mentality