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Lifestyle inflation trap: How to be responsible with your extra money

Pandu W. Soeprapto
Pandu W. Soeprapto

Banker, part-time teacher, and at-any-other-time writer

Jakarta  /  Fri, February 14, 2020  /  01:24 pm
Lifestyle inflation trap: How to be responsible with your extra money

Illustration of a profligate lifestyle (Shutterstock/doodlia)

Many people think it is a delight to be a high-income earner. In my opinion, it certainly is. No doubt about it.

People with high income have advantages over their low-income counterparts. Most clearly, they have more opportunities to do more in life. They possess greater flexibility in arranging their finances and budgets to meet future needs and protect themselves against economic downturn, and they have extra potential to save and invest.

Great isn’t it? Anyway, that is the ideal situation.

The majority are probably doing just fine, but a number of those high-income earners are struggling to pay off debts, find it hard to manage their finances and living paycheck-to-paycheck, unable to put aside any money for simple emergency savings.

Sounds familiar?

The damage is done, and if those people took note of every expense they make, it would be possible to look at the history, identify mistakes, and learn from them.

Now, what causes high-income earners to experience the unfortunate financial conditions mentioned above? There are many answers to this question, as each situation has its own set of circumstances, yet the following are some common causes:

Lifestyle inflation

This one never fails to impress me -- it gets us all. People dedicated to their career start earning more money and bonuses than before – and begin spending most of that extra money on large purchases that might not be crucial – just because they can.

Okay, what is wrong with that? If we regularly spend the extra money we earn, without realizing it, our current lifestyle increases as well, and we put ourselves in need of that extra money to maintain the inflated lifestyle.

And there is no certainty in life except uncertainty itself; even our income is not certain. Imagine what would happen to that lifestyle if the extra income stops?

It is easy to boost one’s lifestyle and get used to it, but to tone it down again is an entirely different matter.

To prevent this, remember that having extra income does not mean you need to increase your lifestyle as well.

Looking good

High-income earners can be considered successful people. There is this urge and also peer pressure to look wealthy. Thus, they become more aware of their appearance and buy expensive accessories to go along with it.

This is a situation I experienced in my younger days. At the time, I started buying watches – fortunately, I never felt rich enough to buy top-tier luxurious ones – and replaced my shirts with more pricey substitutes to look wealthy.

In hindsight, it was a valuable experience. But, in several cases, looking the part is still necessary in socializing and networking with clients or VIPs. As such, I have several pairs of clothing for that kind of occasion. Other than that, I wear normal clothes.

Remember that looking wealthy does not make you wealthy. It is better to use all the remaining resources to make you genuinely wealthy. Having said that, there are people that both look and are wealthy. Thumbs up for them.

“I deserve it” mindset

High-income earners are hard workers. Generally, they work harder than their peers to earn that additional cash every month. They continuously educate themselves to become better. They endure longer working hours, even doing assignments on weekends. They shoulder huge amounts of stress.

Naturally, they want to reward themselves for doing all that demanding work, for the time away from their precious family, for postponed vacations and for years of education to finally obtain the position.

That feeling is justifiable, and there is nothing wrong with rewarding yourself. I even recommend it, as it keeps you motivated and gives you a stronger sense of purpose. However, it is easy to get drowned in this excitement of rewarding yourself and go overboard, ruining your finances that you put countless hours of effort into building up.

Having a high income can be deceptive: It makes us feel wealthy without automatically making us wealthy. Wealthy people do not get wealthy by earning and spending, but by earning and investing.

Don’t be a person who only looks wealthy but doesn’t actually have wealth.

The potential is there; use it to the fullest. (kes)

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Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.