Ever feel like even though you are earning more, you’re just as broke as you used to be? Well, there’s actually a pretty interesting explanation for this – its called lifestyle inflation.
What is lifestyle inflation?
Lifestyle inflation occurs when your spending grows in line with income. Aka your perceived cost of living increases.
For example: instead of never eating out , when you get that pay rise suddenly you’re regular at all local restaurants.
These are what we call new spending habits, and the downside is that they swallow up your potential saving increases from earning a higher income.
What is the solution?
Ideally, savings stays at the same percentage of earnings, so that when that pay rise hits your bank account you transfer more over into your savings accounts that you used to.
Fortunately, awareness of lifestyle inflation and good savings habits can help you out here. Take a read through some tips we’ve put together to help you get on top of your personal finances: