Picture this — you just received a salary hike and the world is your oyster. With a bigger paycheck, you can now afford to upgrade your lifestyle, indulge in expensive hobbies and splurge on the latest gadgets... right? But here’s the catch — an income increase should not always mean an increase in lifestyle expenses. Yes, the initial high of a bigger paycheck can be exhilarating. However, once the novelty wears off, you may be left with a lifestyle that’s not sustainable. Let’s discuss why this happens and what can be done about it.
Income vs expense
Getting a salary increase is no doubt exciting, and it feels natural to want to increase one’s lifestyle to match the new income. However, one must consider the detrimental effects that this mindset might have on one’s finances in the long run.
Increased income may create the illusion of being able to spend more, but this can cause expenses to spiral out of control. Trends set by others may make it seem necessary to have certain things to fit in, leading to a cycle of unnecessary spending. It’s easy to fall victim to lifestyle inflation. But here’s a reality check — luxury cars and designer clothes won’t buy you financial freedom. Instead, focus on saving for the future and getting out of debt. While it’s okay to reward oneself occasionally, it’s vital to keep one’s priorities in check.
The Debt Trap
So you’ve increased your lifestyle expenses, and now the bills are piling up. You might think it’s not a big deal to just put it on your credit card, but think again.
The negative impact of increased debt can spiral out of control if not dealt with properly. Interest rates will continue to add up, and you’ll find yourself struggling to make the minimum payments. Suddenly, a salary increase doesn’t seem so exciting anymore. The struggle to decrease or eliminate debt is real. It requires discipline and sacrifice. You might have to cut back on non-essential spending and find ways to increase your income. But don’t worry, it’s not all doom and gloom. There are many resources available to help you get out of debt. Remember, the sooner you start tackling your debt, the better off you’ll be in the long run. So, if you want to avoid the debt trap, it’s important to live within your means, save for emergencies, and invest wisely. Don’t let the excitement of a salary increase lead you down a dangerous path of debt.
Savings and Investments
We’ve all had times where we’ve splurged on expensive vacations, bought the latest gadgets, or indulged in a little retail therapy. While it’s fun to spend money, the excitement of ‘having it all’ can be short-lived. That’s where the importance of savings and investments come in. Saving money may not be as glamorous as splurging money, but it sets us up for long-term financial success. Savings build financial stability and are necessary for emergencies. When ‘life happens’, if there’s no savings in place, debt is usually the go-to option. And who wants that looming over their head? Investing, on the other hand, is strategic savings. Investing is where our hard-earned savings can grow exponentially.
Investments can be used for big purchases, like buying a home, for retirement, or even for starting our own business. We are not saying to stop splurging altogether, but we are suggesting finding a balance between spending and saving/investing.
Investing a fixed percentage of our salary each month can be a great way to start building a strong financial foundation. And who knows? Maybe watching our net worth grow is even more exciting than splurging on a new pair of shoes.
Happiness vs Materialism
We live in a world where material possessions often equate to happiness. The newest phone, the trendiest clothes, and the fanciest car can all make us feel good, at least momentarily. However, these moments are fleeting, and the chase for material satisfaction is never-ending. True happiness and fulfillment cannot be found through material possessions. Instead, it comes from within, from personal relationships, self-growth, and experiences.
The pursuit of material possessions has caused many to fall into debt, anxiety, and depression. The notion that we need to keep up with the latest trends can often lead to financial instability and an unfulfilled life. In conclusion, it’s important to recognize the pitfalls of materialism and focus on finding true happiness and fulfilment. We should prioritize experiences, relationships, and personal growth over material possessions.
(Viral Bhatt is the Founder of Money Mantra, a personal finance solutions firm)
