Have you noticed that as your salary increases, so do your expenses? This phenomenon, known as lifestyle inflation, is related to people’s natural desire to improve their quality of life. As income grows, many people tend to acquire goods and experiences that fit their new economic reality..
However, this ambition can generate financial problemssuch as difficulties saving and planning an effective monthly budget. Additionally, it can lead to excessive debt, which can complicate personal and economic dynamics.
There are various theories that try to explain why this phenomenon is so common. Some experts suggest that it is due to the desire to improve social status, enjoy a more comfortable life.
“Lifestyle inflation is what is known as those people who try to appear to have a certain level of income by consuming certain goods. These generate a signal for the rest of the consumers that these people have a high level of income,” said Emiliano Fucks, economist and academic at the Faculty of Administration and Economics of the University of Santiago (USACH).
Instant gratification
“In many cases, the increase in lifestyle It has more to do with the ‘desire’ to acquire goods and services, than with the ‘need’. Therefore, the greatest income ends up being squandered on luxury goods,” said Sergio Tricio, general manager of Patrimore and professor at the Faculty of Economics and Business of the University of Chile (FEN).
From a psychological perspective, this phenomenon could be linked to the self-esteem of each individual.
Isabel Loader, an expert psychologist on the subject, explained that “probably, upon reaching a higher salary, one will want to acquire material things. Especially if you come from an environment where those things were not normal.”
Along these same lines, Loader established a direct connection between lifestyle inflation and the aspiration to improve well-being “People feel more fulfilled or happy when they buy or obtain valued things. There is a instant gratification“he added.
Tricio also attributed another factor to this phenomenon. According to him, Generations between 20 and 40 years old tend to focus more on enjoying the present than on saving for the future, for example, for eventual retirement.
“For this age group, the most important thing is the present: living better now, buying the expensive car now, traveling abroad now. For this reason, we do not realize it and we already have debts, and it becomes much harder to build a plan that allows us to get closer to our dreams, which are eventually more transcendental,” he reflected.
The consequences of acquiring assets that we cannot finance
Lifestyle inflation can lead to economic problems when consumption aspirations exceed available resources.
“In this case, what you see is that that person is wanting access a luxury good beyond their income possibilities or monthly flows,” argued Emiliano Fucks, a USACH academic.
Romina Capetillo, influencer of financial education and author of the book “From $orden to order,” told Chócale that the most relevant consequence of this phenomenon is “that we are more exposed to debt and bad debt, debt that generates only financial burdens“.
In fact, she herself experienced this situation firsthand. “I remember that the more I earned, the more I spent and that ultimately It led me to this constant cycle of paying one card with the other card and the line of credit with consumer credit and so on.”
In this context, he emphasized that Earning more money comes with the responsibility of knowing how to manage it properly.. “If I don’t know how to manage money, no matter how much money I earn, I’m going to spend it, I’m going to lose it and I’m going to mismanage it,” said the influencer.
What do experts recommend to avoid “lifestyle inflation”?
Romina Capetillo stressed the importance of having a monthly financial plan. He explained that having Clarity about income, expenses and debts allows you to make necessary adjustments to improve personal finances and encourage savings.
He also emphasized that preparing an economic projection does not only consist of reviewing the expenses already incurred, but also of plan ahead.
“The budget is deciding how you are going to earn each peso that enters your account. So that is key to avoiding falling into this trap of lifestyle inflation,” added Capetillo.
For this, Patrimore’s general manager recommended establish a distinction between two types of goals: medium and long term. This differentiation will facilitate the creation of an effective and realistic plan.preventing immediate expenses from dominating decisions.
“The simplest strategy to avoid the lifestyle trap is save at the beginning of the month, generate automatic savings and that, in addition, it will be increased when we obtain an increase in our salary or receive a bonus” concluded Tricio.