Dealing with Lifestyle Inflation
Believe it or not, some people don’t experience serious debt problems until after they start making more money. This may seem pretty counterintuitive, but it does make sense when you think about it. When you are fresh out of college and just starting out, you typically don’t have a lot of money, so you don’t spend a lot. However, after you get your first “real” job and see your salary jump, it is very tempting to spend money like you are making up for lost time.
Lifestyle Inflation and Young Professionals
From the moment you get your first big paycheck from your “grownup” job, you may start to feel like your entire life should start to reflect your new professional status. You may want a new wardrobe, a new car and possibly even a new house or apartment. Your social habits may also change if you have started to make friends in your new, professional world.
You may be invited out to dine at expensive restaurants, feel pressured into attending certain events and suddenly find that you are struggling to keep up with people who always seem to have more money than you. And, eventually you may find that, in spite of your newfound wealth, you are overspending and swimming in debt. How can you avoid falling into this trap?
- Give yourself a reality check. It is certainly okay to give yourself a lifestyle upgrade when you start to earn significantly more money, but you should avoid going overboard. Before making any major changes, set some necessary boundaries and prioritize your wants and needs. For example, do you really need a new car or can it wait? Or, how much living space do you actually require? In order to accurately address these questions and others, you will need to figure out your budget.
- Set a realistic budget. Establishing and adhering to a budget isn’t just a last resort for individuals who find themselves in financial trouble. In fact, strategically living within your means is the best way to build wealth and avoid economic disaster. No matter what your income happens to be, you are still bringing in a finite amount of money, so you need to plan your spending accordingly. So, before moving into that new apartment or buying that great new car, take a careful look at your income and your existing bills to accurately gauge whether or not you can afford the additional expense. And never forget about your savings. You should always be putting money aside in order to build an emergency fund. So, if you unexpectedly lose your job or end up in the hospital, your financial well-being won’t be thrown entirely off track.
- Don’t fall victim to peer pressure. If you have friends that are spending beyond their means, you shouldn’t feel like you have to “keep up.” If “keeping up” ultimately makes you fall behind, it has to be a bad decision. It is absolutely okay to decline invitations that involve overspending. When it is your turn to do the planning, you can organize a game night or host a potluck dinner. You may end up leading by example, proving to everyone that you can have fun and socialize without breaking the bank. And if you notice that you are envious of a friend’s wardrobe, recreation habits or car, just try to think ahead a little. Sure, it might be fun to wear designer clothes, take fancy vacations and drive a brand new luxury vehicle, but if indulging in these things and activities would threaten your long term financial goals, are they really worth having?
Just remember that looking and feeling successful and actually being successful are different things. And success shouldn’t be measured by how you look, where you go and what you drive. Being frugal and smart with your money now may allow you to enjoy long term wealth and financial security later on. Is it okay to have a little fun with your newly improved income? Yes, you should be able to enjoy life and be a little frivolous from time to time. However, the actions that you take as a young professional should never threaten to compromise your future as a mature adult.
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Financing for Beginners
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