In behavioural science, frugality has been defined as the tendency to acquire goods and services in a restrained manner, and resourceful use of already owned economic goods and services, to achieve a longer-term goal.
Lifestyle inflation simply refers to an increase in spending when an individual's income goes up.
Youâre probably thinking âwell those two donât sound like oppositesâ.
Promotions, raises and bonuses offer the opportunity to start living more comfortably, or even extravagantly.
Why is that a problem?
Understanding Lifestyle Inflation
One instance in which lifestyle inflation typically occurs is the transition from being a student to being a full-time employee.
Despite surviving on very little money as a student, once that first paycheck arrives, things that were once "luxuries" can easily become "necessities," resulting in increased spending.
But to be fair, can we really argue with that? Isnât the point of making money to take care of ourselves and spend it on things we desire?
Well⌠yes⌠butâŚ
The truth is lifestyle inflation tends to become greater every time we get a raise and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals.
Lifestyle inflation is what causes people to get stuck in a cycle of living paycheck to paycheck where they have just enough money to pay the bills every month.
Okay, so whatâs the alternative?
The Stigma of Frugality
Frugality sometimes gets a bad rap.
It's often seen as self-sacrifice.
Such behaviour is often viewed as giving up things you really care about in order to save a trivial amount of money. It's often seen as being the opposite of fun.
The thing is, when people survey their lives and think about frugality, they see radical, painful, unwanted changes that donât add up to much savings at all.
They see endless effort dumped into a bottomless pit that merely saves them pennies.
Who wants to bother with that?
So where do you stand?
Do you have a tendency to be frugal or to be lavish?
What are your spending habits like?
How has your family and social environment influenced your finance culture?
What are your guilty pleasures?
Where does all your extra money go? đ¸