When I was 20 years old, I got my first big promotion, and a "big fat" pay increase came with it. I was making more money than I ever dreamed possible.
So what did I do with all this extra cash?
I bought a new car and more expensive clothes; I started eating at fancier restaurants and paying for everything I dreamed of having a few years back.
Six months into the management promotion, the pay raise, and the more luxurious lifestyle, I felt more broke than when I was a secretary.
I was living paycheck to paycheck and realized I had no savings. Yet, everyone around me just saw how much "better" I was doing.
Today, when I look back at my decisions, I realize that because of the mindsets I grew up with, I suffered from heavy lifestyle inflation.
What is Lifestyle inflation?
Lifestyle inflation traps most people today. You dream of showing off all that you worked for.
You want everyone to see how much your hard work paid off. So you start trying to keep up with the Joneses.
Your lifestyle gets increasingly expensive from year to year, with most years becoming more costly than the income increases you get.
Soon, it's challenging to keep up with it, and you turn to credit cards and bank loans to keep up the facade.
Avoid the Trap
Although lifestyle inflation is not wrong as you start making more money, you must be self-aware and decide when to put a cap on it.
Most financially literate people understand that it's better to live below your means after reaching a certain point.
Investing that additional income into things that can help you grow your wealth is better.
Move away from that material-driven lifestyle and put your money to work for you.
The Challenge
Evaluate your current lifestyle to see if you have fallen victim to this trap. If you have, limit the essential things and decide what you must cut out.
Commit yourself to living below your means and using the additional yearly income to invest and grow your wealth over time.
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