Lifestyle inflation could be eating your finances - money-getty - Economic Times
Lifestyle inflation could be eating your finances - money-getty - Economic Times
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Money-getty
Lifestyle inflation refers to an increase in one's expenses with the rise in their income. It tends to continue each time when one gets a hike but perpetually is unable to meet the financial goals in life. Millennials, who form a 47 per cent share in the working-age population, are most vulnerable to this kind of inflation as they believe in instant gratification. Here's how you can combat this silent wealth diminisher.
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Set a budget for yourself & stick to it
Having a pre-defined budget is a good way to combat lifestyle inflation. Differentiate between needs and unwanted desires. Hike in income calls for a celebration but it shouldn't be at the cost of modifying your lifestyle, putting major goals at risk. While a hike in income calls for a celebration, it shouldn't be at the cost of modifying your lifestyle, putting major goals at risk.
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Automate investments!
One of the easy ways to save money, compound it and battle lifestyle inflation is to automate it. Many financial instruments, such as mutual funds give you the option to automate your investments, resulting in forced savings. For instance, a monthly SIP of Rs 5,000 in an equity mutual fund offering 12 per cent annualised returns for a period of 10 years can help you amass a corpus of over Rs 11 lakh. However, if you step-up the SIP amount by 10 per cent annually, the end corpus will be above Rs 16 lakh.
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Avoid lifestyle-related borrowings
Availing loans to meet various lifestyle-related needs is easy these days, thanks to fintech. Justifying such borrowings with increased income is not uncommon. Lifestyle-related borrowings often come with a high rate of interest, resulting in high EMIs that can significantly strain your finances. In the event of missing a single EMI, your credit score can take a major hit.
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KYS- Know your self!
Peer pressure has a lot to do with lifestyle inflation. Make sure don't fall in the trap of imitating your peers rather be aware of your needs and make sure you spend only to fulfil them.
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Invest your funds wisely!
Combating lifestyle inflation to gain financial security is all about curbing the need for instant gratification and understanding how the increased funds can be better channelised for growth for the long haul. At the same time, it is vital to be in absolute command of your needs and not give in to the pressure of mimicking your peers and bring a major change in your standard of living. Through fiscal discipline and prudent choices, you can overcome lifestyle inflation and build a sizeable corpus for crucial goals.
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