He Earns $100,000 a Year and is Still Broke

Heard of the term lifestyle inflation?

This happens when someone increases their lifestyle (and it’s accompanying expenditure) every time they get a raise. This essentially makes it harder for these individuals to get out of debt and prepare for the future. Lifestyle inflation keeps people in a state of constantly working just to pay off their monthly bills. (That’s elaborated here at Investopedia.)

Many of us are guilty of this. On one hand we need to be wise and keep our expenses low but we also want to reward ourselves from all the hard work we’ve put in.

So what is a good balance? Here are five ways to enjoy your life while preventing yourself from slowly edging towards lifestyle inflation.

Ignore marketing emails

We all love having nice things and the price tag only matters when we can actually afford it. The problem arises when you can afford to buy a more expensive version of the exact same thing when your paycheck increases.

Upgrade necessities like better quality food or even 3ply toilet paper (something the COVID related lockdowns have revealed to be a priority for many). However for other luxurious items that you honestly don’t need, don’t make the switch. If you can’t resist temptation then a simple trick is to click “unsubscribe” to all the marketing emails from brands that you’re drawn to but aren’t necessary.

Set goals

Just like how you start to lose time when you don’t allocate your time intentionally, if you don’t allocate each dollar to a purpose, you tend to lose it and not know where it went. Your goal can be anything you want it to be, but wiser goals would always be to repay your mortgage loans, debts, and aside money for your retirement years. This way, you have money set aside for your life’s milestones before you start splurging.

Feed your retirement & emergency funds first

With an increased pay check, you’re going to need to prepare a bigger emergency fund. Our general recommendation is to have an emergency fund that makes up 6 months of your paycheck. If you have more savings leftover then boost your retirement fund too, your future self will thank you. By feeding these funds first, you are eliminating the temptation to spend on things you may regret. At the same time, you’re one step close to an earlier retirement.

Avoid buying or renting a bigger house

Downgrading your lifestyle is emotionally much harder than upgrading it. Instead of buying a bigger place, consider getting another property or some form of investment to create an asset that would generate passive income for you.

In many countries, additional buyer’s duty for 2nd properties are currently imposed to prevent property prices from inflating too quickly, so be sure to consider your first purchase very carefully. At times, decoupling for individual property purchases will help to reduce your cost for the 2nd property when the time comes. Otherwise, there are many other investment options to consider, depending on your situation.

(Read this: Should I invest in ETF or Real estate)

Needless to say, rent is a straight out expense that we should try to reduce or at least maintain, so do try your best to enjoy the home that you have already created for yourself!

Manage your expenses closely

We often fall into a rut where getting a bigger salary means we raise our expenses. By convincing ourselves that we need to “treat” ourselves, many of us end up not knowing where our money leakages are, and as a result we don’t save as much as we could. Worse, we end up unknowingly spending money on things we don’t derive satisfaction from.

It may seem tedious to track every dollar you spend and earn, but it’s a proven method of growing your initial wealth, and will also instill discipline in your life. Luckily, these days we have automated tools that can do this, without the traditional stresses of keying everything into a spreadsheet.

Tools like Planner Bee are nifty money trackers that sync to your bank accounts, so you have full visibility over your spending, and can quickly pinpoint surprise leaks in your spending. Better yet, these tools are mobile, so you have the convenience of carrying around your personal planner in your pocket.

Repay your loans 

If you have outstanding loans, start repaying them starting with the loan that has the highest interest rates. The type of loan that tends to have the highest interest rates are usually credit card loans and credit overdrafts. Debt repayment should always come first. Don’t live your life constantly burdened with loans. Every small choice you make to repay a loan, the closer you get to being debt-free!

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