CFO of Life #36: From Victim to Victor - Overcoming Lifestyle Inflation and Building Sustainable Wealth

In the pursuit of a prosperous future, lifestyle inflation often lurks as a daunting obstacle. It silently undermines our ability to accumulate wealth, leaving us trapped in a cycle of escalating expenses. As individuals, we must assertively address lifestyle inflation to unlock our full financial potential.

That’s why in this article, I will strive to empower you with practical strategies to conquer lifestyle inflation, enabling you to take charge of your financial destiny with confidence and purpose.

Before that, we need to start with understanding what lifestyle Inflation is. 

*Essentially lifestyle inflation is the gradual increase in spending that happens when your income increases. It is tempting to buy a new watch, a pair of shoes or an expensive vacation just after receiving our annual bonus. Don't get me wrong, it is always worth getting a few good things and upgrading what’s worth, but this toxic phenomenon erodes our ability to save, invest and build a secure financial future.

So, in order to understand how to avoid it, you need to understand what are the signs of lifestyle inflation. For example, victims of lifestyle inflation often succumb to societal expectations, continuously striving to keep up with the Joneses. They prioritise instant gratification over any form of long-term financial security. This is often displayed by neglecting savings and financial goals.

Once you catch yourself in this situation, it is time to start taking action against it. And the best thing to do is to employ strategies and deploy tools that remove any ambiguity in this process. Unsurprisingly, we’ve previously discussed some of the best and most commonly prescribed strategies to do that:

- Creating a financial plan

- Setting up a plan to become debt free

- Establishing a budget and tracking your spending

- Adopting a mindful approach towards spending

But let’s think about how to build upon these with some additional steps that will have a more direct impact and help battle the silent killer that is lifestyle inflation. Have in mind that some strategies would be aimed towards taking action and others would be towards changing your mindset.

1. Automate savings and investments

Paying yourself first and investing towards your financial goals should be non-negotiable. And automating this can ensure that it always happens, it is on time and it goes according to your plan. It will also negate your fear of losing the money, and the temptation to make investments that are outside of the scope of your goals. That will ensure that regardless of how much your income grows, you would have a portion of your income going towards investments.

2. Practise delayed gratification

This is simply the act of actively avoiding impulse purchases and spending extra time to consider if they are worth it. This would take time to master and it might also cause some headaches, but it is worth it. Don't get me wrong, I still battle with this one, but who can say no to a cheeky croissant with your morning coffee on the go?

3. Stop following social media trends

A lot of people get caught up in keeping up with the Joneses and trying to imitate their lifestyle. Or looking at everyone on social media and all the “flashy” purchases they make. Well, it is tempting to chase that high and always buy new stuff, but that would not get you far. So if you manage to control this, then conquering lifestyle inflation would be much easier!

4. Focus on experiences rather than material possessions

Think about your priorities, sometimes what makes people happier is focussing on acquiring experiences rather than material possessions. They will create a lot of long-lasting memories that will bring you joy for a long time. That extra pair of running shoes will mostly collect dust in my wardrobe. But spending $50 for coffee in Taipei 101 in the highest possible Starbucks in the world would always be in my mind as the views and the memories are priceless!

5. Establish a Supportive Environment

All journeys are easier when you share them with someone who has the same financial goals. If you find people who have the same goals, you would have a substantially higher chance to succeed. You can always rely on them to engage in constructive conversations, give honest feedback and share ideas on how to conquer lifestyle inflation. They can provide you with motivation, accountability and valuable feedback.

6. Set up a plan on how to divide your extra income

Most people see all new income as “extra” that can be spent frivolously, and sometimes we need to do that for ourselves. But in the long run, that will cost you a lot. That is why it is vital to create a plan on how you allocate any bonus that you receive, or how to handle promotions. And the easiest thing to do is to keep everything fixed and allocate all the money the same way you did before. That will keep everything “relatively” the same, but will also give a healthy boost to your “for fun and entertainment “ budget so you can enjoy that happiness!

Doing those things would not guarantee your success, but it will set you on the path towards becoming a victor against lifestyle inflation. But in order to become the ultimate victor in the battle with lifestyle inflation, you would need to properly manage your financial choices and avoid the social traps and pitfalls that lead you to excessive spending. In short, you should try and strike a balance between avoiding the temptation of short-term gratification and planning for the future, so you can enjoy the present and still move forward with your financial goals.

The most common benefits of battling lifestyle inflation are:

1. Increased savings and enhanced wealth accumulation

2. Reduced financial stress

3. Ability to weather unexpected emergencies or financial setbacks

4. Enhanced ability to pursue meaningful goals and passions

5. Retirement Security

6. Opportunity to pass on a legacy and provide for future generations

Don’t forget, lifestyle inflation is a silent killer that could erode your finances over a long time. But by confronting lifestyle inflation with an active approach towards changing your spending habits and aligning yourself with your long-term goals, you will get a lot further. And the rewards on the other end of the rainbow are plenty – from reduced financial stress and being more secure to aim for your goals to a more secure retirement. But don’t wait, seize your opportunity and conquer lifestyle inflation now, before it corrupts your future potential!

Post #36 in the series CFO of Life #si #personalfinance #CFOofLife