It’s easy to find yourself spending more as your income increases, but it’s important to understand how this inflation can quietly affect your finances. It’s a common phenomenon where people unknowingly upgrade their lifestyle, leading to higher expenses that can outpace income growth. An awareness of lifestyle inflation is crucial because it can affect one’s financial stability and long-term goals.
The Silent Creep
Lifestyle inflation—or lifestyle creep—is basically when your spending goes up as your income increases. A good analogy for it is a frog slowly boiling in water—you don’t realize how much things have changed until it’s already too late.
This topic is especially relevant in a place like Singapore, where incomes can be high and the cost of living keeps rising; this is a real issue. But it can happen to anyone, anywhere.
Here’s why it’s so hard to spot:
Gradual Income Increases and Small Upgrades
Those small salary bumps or bonuses seem harmless. You think, “I deserve this little treat.” Maybe you do. And there’s absolutely nothing wrong with rewarding yourself from time to time.
However, those seemingly small things—like that slightly nicer coffee, eating out an extra time a week, or another streaming service—they all stack up.
We need to understand that, as humans, we tend to notice big changes and not the little ones. Those tiny increases in spending caused by minor lifestyle adjustments fly under the radar.
Social Comparison and Keeping Up With the Joneses
Social media makes it worse. We see everyone and their “perfect” lives, and it feels like everyone else is living large. This can create unnecessary pressure, especially in a place like Singapore, where most folks are in constant pursuit of success.
You might feel like you need the latest gadgets, trendy dinners, or fancy vacations just to keep up. Research shows that comparing ourselves to others can heavily influence our spending habits.
For instance, some people don’t only increase their spending but actually overspend because of the need to keep up with society’s expectations. They feel the need to make big-ticket purchases, and when they can’t afford them, they take out a loan from a license money lender or bank.
Don’t get us wrong. There’s nothing wrong with borrowing money for important purchases. In fact, it is a powerful tool that can improve one’s financial situation. But when it is used with the wrong motives at the wrong time, the results can be disastrous.
The Illusion of Affordability Due to Low-Interest Debt and Payment Plans
Credit cards and “buy now, pay later” schemes make it seem like you can afford more than you actually can. Those small monthly payments don’t feel like much, but they add up to a lot of debt over time.
This is a trap that many fall into, thinking they can handle the payments without considering the overall cost and long-term ramifications.
Shifting Baseline Syndrome
This is a psychological term where people adapt to new situations, and those situations become the new normal.
For example, a person may feel the need to upgrade to a larger apartment, and after a while, that larger apartment becomes the normal, and they forget how they lived before. This effect causes people to always want to upgrade, and to forget the financial constraints they previously had.
Lack of Budgeting and Financial Tracking
If you’re not keeping track of your money, you won’t notice where it’s going. Many people rely on rough estimates instead of detailed budgets. This “out of sight, out of mind” approach makes it easy to overspend without realizing it.
According to financial experts, those who budget and track their expenses have a much better handle on their finances.
What Can You Do?
To avoid getting into a debt trap caused by lifestyle inflation, do the following:
- Budget Regularly: Create a realistic budget and stick to it.
- Track Your Spending: Use apps or spreadsheets to monitor where your money goes.
- Set Financial Goals: Having long-term goals helps you prioritize your spending.
- Review Your Finances: Regularly check your spending habits and adjust your budget as needed.
- Practice Mindfulness: Be aware of your spending triggers and avoid impulse purchases.
Wrapping It Up
In Singapore and everywhere else, it’s important to be aware of lifestyle inflation. By being mindful of your spending and planning for the future, you can keep your finances on track.