ARTICLES

Lifestyle inflation refers to an increase in an individual's standard of living and spending patterns, as their income increases. This often results in a higher cost of living and increased expenses, which can erode savings and impact financial stability if not managed properly. It is the tendency to adjust one's spending habits to match their rising income, rather than saving or investing the extra money.

It can be challenging to manage personal finances with this type of inflation, but it can be prevented with careful planning. A few steps to help you combat this: 

• Set a budget: Establish a budget and stick to it. Keep track of all your expenses, both necessary and discretionary.

• Prioritize savings: Make sure to set aside a portion of your income for savings before you start spending. Follow the world-famous 50:30:20 rule wherein 50% of the income goes to needs, 30% to wants and 20% to savings and investing. Click here to read important thumb rules to know in personal finance.

• Live below your means: Spend less than you earn, and avoid taking on additional debt.

• Be mindful of wants vs. needs: Separate your wants from your needs and prioritize spending accordingly.

• Avoid comparisons: Don't fall into the trap of comparing your spending and lifestyle with others.

• Reevaluate regularly: Regularly review your spending habits and make changes as needed.

• Avoid impulsive purchases: Don't make impulsive purchases that you can't afford. Plan ahead and consider if the purchase is a want or a need.

To control finances and prevent lifestyle inflation, careful planning and budgeting are key.