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What is lifestyle inflation?

Lifestyle Inflation: Does this happen to you too? On the first day of the month, the message of salary credit comes, a relaxed smile appears on the face. Looks like everything will be fine this time, some money will definitely be saved. But by the 15th-20th, the situation becomes the same again. By the end of the month, our pockets become almost empty and we start waiting for the next salary.

If your salary has increased recently or your income has increased significantly in the last few years, and even then there is no significant improvement in your financial condition, then you are not alone. This is a very common but serious problem, which financial experts call 'Lifestyle Inflation'.

This is such a sweet trap, in which a person, despite earning a good amount, remains on the verge of poverty. Let us understand what it is and how it is draining your pockets.

After all, what is this 'lifestyle inflation'?

'Lifestyle inflation' simply means – along with the increase in income, your living standards and expenses also increase at the same pace, or even at a faster pace.

As a person's salary increases, he starts thinking about making his life a little more comfortable. There is nothing wrong in this. But when this change becomes uncontrolled, then the problem starts. The small house becomes bigger, the old car is replaced by a new and expensive SUV. On weekends, instead of normal restaurants, dinners are now held in five-star hotels. Instead of ordinary clothes, the wardrobe is filled with branded and designer wear.

All these things make life feel much easier and better in the beginning. It seems that we are progressing in life and living it to the fullest. But this habit gradually starts hollowing your financial roots and nothing is left for savings.

Even good earnings cannot stop the 'crisis' of the month.

The problem starts when this increased expenditure ceases to be your 'want' but becomes your 'need'. Understand it this way, when your salary was Rs 50,000, perhaps you used to spend Rs 45,000 and save Rs 5,000. But when your salary increased to Rs 80,000, you also increased your expenses to Rs 75,000.

Your salary increased by Rs 30,000, but your savings remained stuck at Rs 5,000 (or perhaps it decreased further due to inflation). This situation is called 'paycheck-to-paycheck' life, where you wait for the next paycheck to come so you can pay the previous bills and get through the month. This is such a maze in which a person's income keeps increasing, but his wealth does not increase.

How to become real rich?

It is difficult to get out of this invisible trap, but not impossible. For this, some concrete steps need to be taken.

• Stop comparing with others: The biggest reason for lifestyle inflation is social pressure and comparison. We often decide our needs by looking at our neighbours, relatives or social media influencers. If a colleague has bought a new car, we also feel that we should buy one, even if our old car is running fine. This competition for show off is the biggest enemy of our financial health.

• Make budget your weapon: Make a strict budget at the beginning of every month. Divide your income into three main parts – needs (house rent, groceries, bills), desires (travelling, eating out, shopping) and savings/investments. The most important thing is to stick strictly to this budget. This is the real medicine for your financial health.

• 'Automate' savings: The most successful rule for saving money is 'Pay Yourself First'. As soon as the salary comes into your account, a fixed amount (say 20% or 30% of your income) should be automatically transferred to a separate savings or investment account (say SIP) immediately. 'Automate' it. With this you will save even before spending.

• Buy happiness, not 'luxury': Spend your hard-earned money on things that give you genuine mental satisfaction, not on things just to impress others. Instead of buying an expensive watch or car, use that money to travel, learn a new skill, read books or pursue your hobbies. It will give you real happiness.

• Shop wisely: Even if buying something is very important, be wise. Take full advantage of offers, festive sales, discounts or cashback so that the burden on your pocket is minimal.

Always remember one thing that the real rich is not the one whose income is very high, but the real rich is the one whose savings and investments are increasing faster than his earnings.