Lifestyle Inflation

Is this a new term that you are hearing for the first time? If so you need to know what it is all about. Lifestyle Inflation indicates the rise in your lifestyle expenses which you need to consider. As your disposable income increases, you tend to acquire certain expensive tastes and desires. This is also a function of the growth in availability of a number of options. For example, you would have been content to watch movies in an ordinary movie hall a few years ago. However, with the hefty pay hikes you’ve received over the years, you would now have upgraded to multiplexes. In simple terms, it means your ticket cost has jumped from Rs 100 to Rs 250.

This problem is very common in the engineers working in the MNC and also to a certain extent in the ITES sector as well. In the 80s -90s time frames, the people who were employed were getting hikes in the range of 5% – 7% above the inflation and that did not give them enough spending power. Even if they did get that spending power, they just used the money to buy assets in order to strengthen their financial status. Whereas in today’s situation, the pay package of an individual is nice so that he/she has enough disposable income. So, the affordability is much higher, resulting in people giving in to aspiration and peer pressures.

This bug bites individuals in the range of 25-40 years. This is the age where individuals stretch themselves to buy the latest car or an LCD TV, even if that siphons off a considerable portion of their bank balance. Why I choose the range of 25 – 40 years is that after that age, the growth need not be as massive as in the prime age and the salary will almost become stagnant and there will not be much big spending as it was happening in the 25 – 40 range. If you want to know are you affected by this, then just check the spending that you have done in last few years and now. If there is considerable difference then you are affected by the inflation.

The question that comes to my mind is, is it a good thing or not? I am not against buying nice computer, nice apartment or a latest car or a LED television. If you are working hard and earning money, you need to spend the money. What is the fun in not spending the money and realizing your dreams? The point is the spending that you are doing should make sense to you and it should be *reasonable*. Reasonable is a subjective term and I shall explain it to you in a better way.

For a person with 1 Lakh salary per month buying a car worth 10 Lakh might be reasonable and the same need not be same with a person earning 10k per month. If a person earning 10k per month buys a 10 Lakh car then definitely he will be in trouble during the later part of his life. When you are affected by this then you will know how difficult it is to come out of it. So in order to control it, just be careful of what you spend and how much you spend on. It should be reasonable for you to buy the stuff that you need. You may not be in need of it after a while that is how the stuffs are.

Long back, having a telephone was a big thing, and then pager, mobile came into picture in a later stage. Now people want the best of the mobiles. This is how things are changing. The intention of having a mobile is to communicate, you can do that with Rs.1,000 mobile or even Rs.1 Lakh mobile also. It is upto you to decide which is reasonable for you and have one. Have you noticed any significant changes in your spending habits in the recent times, if so please share it with me. Thank you.

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7 thoughts on “Lifestyle Inflation

  1. Blake says:

    I’ve been thinking about this A LOT lately. I’m still in college, so to make ends meet and save a little bit, it’s absolutely essential that I learn to be satisfied with less. I know that when I leave school however, and hopefully bringing in significantly more income, I can resist the urge to allow my lifestyle to inflate in proportion to my increased earnings.

    I think by far the easiest way to beat lifestyle inflation is to always save a percentage of income, that way when your income rises, you get the best of both worlds- more spending power and higher savings.

    Have you by chance read Your Money or Your Life? I found that to be really thought-provoking book that questions the typical consumerist life.

  2. Saravanan says:

    @Blake :

    Thanks Blake for dropping by. You have two options, one is to earn more or spend less. The choice is yours.

    I completely agree with you that you have got to save some percentage of your income. I appreciate your thoughts.

    I haven’t read the book. I have heard a lot about it. I shall surely read it some time.

  3. Blake says:

    Hey Saravanan,

    I would definitely recommend that book. I don’t follow their advice exactly as they write it, but it’s really good at making you think more and deeper about how you spend your money. It also has a great anti-consumerism message.



  4. Tess says:

    Good point, I didn’t know there was term like that, but I’d been thinking about it.

    To some extent of course its normal and makes sense, we do earn to spend after all. But the “reasonable” part is of course the tricky one to define.

    Some of the things we also need to analyse are the reasons for spending the way we do. A big deal of it depends on your peer group and the people you’ve grown up with or are spending time with. And also realise that your income might not be the only factor to decide your spending, a lot also depends on your other responsibilities, in terms of family circumstances.

    But the introspection you’ve mentioned is certainly important!

  5. Saravanan says:

    @Blake : I will read that book. Thanks for your suggestion 🙂

    @Tess : Reasonable is a tricky to define. Agreed. Yeah, family and peer group and many other circumstances push you to spend the money but the fact is that you can control it and spend it according to your wish. It is up to you to analyze and spend the money.

  6. raghu says:

    One should have lot of courage to live simple !!. So lot of ppl does not have that courage so the spend money..

    • Saravanan says:

      @Raghu : I don’t know whether people need courage to live simple but one thing for sure is that they should not give in to the emotions and use the brain instead.

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