Did you know that many employers are paying higher salaries and higher pay hikes (5% or more) to retain talent amid the Great Resignation in 2022? What does this mean for you?
Too many folks end up dealing with lifestyle inflation when such a raise or pay hike happens because they assume that increased income translates into higher spending. But that shouldn’t necessarily be the case. Keep reading to find out how you can reduce lifestyle inflation and make financial progress towards your retirement goals instead.
Pay Attention to Your Spending – Lifestyle Inflation Creeps up on You
The major problem with lifestyle inflation is that it creeps up on you so slowly that you don’t even notice it’s happening until it’s too late. For example, assume you got a pay raise from $50,000 to $70,000 a few months ago. You decide that you are finally going to live the high life that you dreamt of.
You sell your old beater car for a nicer newer model and upgrade yourself from a 1-bedroom house to a 2-bedroom one to accommodate guests. Suddenly, your salary increase doesn’t seem enough anymore, and you wonder when you are going to receive your next pay rise.
That’s why it’s highly important to pay attention to your spending, especially when you get a pay raise. That is the most crucial time for you. You could either fall into the clutches of lifestyle inflation, or you could start making financial progress.
Use Part of Your Pay Raise for Investments and Retirement Goals
One way you can alleviate the horrors of lifestyle inflation is by ensuring that part of your increased income goes towards making financial progress. You could either invest part of it into your IRA or some other investment account. Do this right away, without even thinking about what else the money could get used for.
Or you could contribute it towards paying down your mortgage faster, so you don’t have to be a slave to your bank for 30 years or longer.
This doesn’t mean that you shouldn’t upgrade yourself in any way at all. The reason you are working so hard is, so you can live a better lifestyle. It’s okay to buy a house in a safer neighborhood if you know that you aren’t going to overextend yourself (use Doorage to help you move).
Use Your Job Promotion to Your Financial Advantage
Don’t fritter away your entire pay raise on doodads and useless items. Some of it could certainly go towards luxury goods, but make sure you put some of your income to service your future financial self.
Lifestyle inflation isn’t something a lot of folks talk about or think over, but it’s an important one to avoid on this journey towards financial progress.
If you would like to keep learning more about related topics on finance, career, and education, then you should check out our other blog posts.