Are You Guilty of Lifestyle Inflation!!

lifestyle inflation

 

A chance meeting with an old acquaintance, let us call him Mr. X, reinforced my observation about the rampant lack of understanding regards to money management . I have known this gentleman for a couple of years now. He is a classic example of today’s generation.  I would like to share his story in order to highlight what I think is wrong with many people today.

A few years back the only source of his modest income was from the tuitions he took for children in higher classes. As luck would have it he secured a job in a leading institute and it resulted in an immediate jump in his income. I met this gentleman around this time and advised him to start making some   investments in order to secure his future, but he was of the opinion that there was not much to invest as there was much expenditure to take care of.

He had soon secured all the paraphernalia to confirm his social status. He carried an iPhone, had bought an expensive car and a house too. The household expenditure had increased many folds and so had the EMIs. This was about two years ago. Again I hinted at the need for investments and was brushed aside with the same excuses.

I happened to meet him recently and was surprised to see him a little off and stressed. A subtle enquiry had him pouring his heart out. The last few years had been great for him financially but he had spent all his increased income to considerably enhance his social positioning. The family was now used to a much higher standard of living and the wife was expecting a foreign vacation this year. Unfortunately this was going to be a problem as he had not received the expected increment and had no extra funds to even take care of emergencies.  The wife had started planning the vacation with a group of friends and he had no idea how he was going to handle the situation. At this point he said, he was looking at a pretty tough period ahead and wished that he had acted on my advice years ago.

I have observed again and again that the youth today and even those who are in their thirties and forties don’t seem to have a propensity to save.  Over the years I have noticed that people are not financially savvy.  The older generations were mostly spending thrifts thus they automatically ended up saving a lot of money whether it was wisely invested or not.  The scenario today is completely different. On an average people are earning more, even ordinary graduates earn far more than they used to a couple of decades ago. The current market offers innumerable options to spend, and people spend.  I speak here not of the people who are struggling to meet ends or of those who lack basics in life, but of those who are comfortable but aspire for luxuries.

An increment means an immediate increase in expenditure but not in savings. It means buying stuff you can do without and it means increased EMIs. People forget that they have long lives and will have needs that will be more important than the latest smart phones.  It is important to save and to invest wisely to secure your immediate and distant future.  This is something most refuse to understand.

I have always felt; live comfortably but not too comfortably. It is important to earmark your savings before you start spending. Plan for your future before you start spending on wants and luxuries.  Also think twice before you start piling the EMIs. today’s market offers you easy installment payments across the board whether it is to buy basics like homes and cars or to buy inessentials like branded clothes, accessories and even vacations.

Yes, all of us have our share of EMIs but have you stopped to think what you are paying for? Is the loan you have taken a good loan or a bad loan. A good loan is for things like homes and cars or even education. Bad loans are for items you can actually do without……expensive vacations, clothes and other similar things. Indulge in luxuries when you can pay them off immediately not over long periods causing financial disturbances down the line. Materialistic pleasure is momentary and addictive. a junkie needs an ever-increasing dose of his drug to satisfy his craving and so is materialistic pleasure. Every time you will need something more expensive to make you happy.

My advice to youngsters starting fresh is increasing your monthly savings with every increment. Treat yourself or indulge yourself when you get an increment but chose to spend it such that it does not affect the next month so that you may start saving more. Make it a point to save 20-30% of your income every month and they invest it wisely so that you may have no troubles during emergencies or in the distant future.

In conclusion I would like to say, that if Mr. X had been more careful and planned with his money he would not be facing such a sad situation. The unbridled spending at home had created a situation of high expectations, which was now leading to a crisis. If he  had kept his expenditures in control and saved and invested wisely, he would have had funds to tide him over the bad period plus all that extra money would have helped him provide a better future during his retirement years.