Most people tend to spend more as they earn more due to social and personal milestones such as having more disposable income and spending more on non-necessities. Most Ghanaians will justify their lifestyle inflation based on their desire for a car upgrade, designer perfumes/shoes/handbags, and luxury trips. There is nothing wrong with rewarding yourself when you earn more or are promoted. Lifestyle inflation usually refers to a person’s upgraded standard of living following a rise in income. It usually happens when one’s income increases over time, and they increase spending to keep pace with that rising income. It usually starts with a simple lifestyle upgrade like the convenience of a takeaway meal or buying/driving a brand-new car or a bigger engine vehicle. This could quickly spiral into an expensive lifestyle that one cannot afford. Being mindful of one’s spending habits is vital to avoiding lifestyle inflation. The following steps will help in avoiding an inflation lifestyle.
Develop a spending plan
Your spending plan can be considered as a plan you create to help you meet expenses and spend money the way and pattern you want to spend. A good spending plan can assist you to avoid spending money without thinking. The plan will ensure you have enough money to pay bills on time even when there is a constant change in your bills and income. There is the need to understand your spending choices, especially what, when, how and where you spend your money. I will advise your spending plan includes money coming in – salary, cash benefits, loans – while your money going out will include utilities, rent, groceries etc. You can create a spending plan by following these steps: List your income, list your expenses, compare your income and expenses, list your resources, and set priorities.
Avoid emotional spending
Emotional spending can be described as spending money during a period of heightened emotion, like stress or sadness. This usually happens when consumers buy items they don’t really need or even want. Spending money to help one feel better can be described as a key coping mechanism for most Ghanaians. We usually engage in such a behaviour when we want to change how we feel, which includes shopping online, eating out, etc.
Friendship and goals
I believe our buying behaviour is strongly affected by our friends, and one is easily tempted to spend extra money based on that. There is the need to find friends who inspire you and have similar passions, as well as supporting each other. One can easily be tempted to spend extra money if their friends are doing the same. Peer pressure is real, especially seeing your family and friends with the latest Apple iPhone or using the latest laptops without considering if they were working within their means. I will advise we all become conscious of our present and future lifestyle changes, and move away from lifestyle inflation.
Set financial goals
It is important to note that your personal goals will vary depending on your life stage. One’s financial goals can be considered as savings, investments, or spending targets that one hopes to achieve within a certain period of time. I will advise we set both short-term and long-term goals such as tracking your spending, paying off credit card debt, and building an emergency fund. Meeting your long-term financial goals requires planning for five to ten years into the future.
Avoid taking on new debt
There is the need to consider the impact of any new borrowing on your existing debt payments, your budget, and one’s ability to save for the goals that have been set. Avoiding debt requires one’s ability to establish a sound financial plan. I will advise the need to take a proactive approach and better use of one’s time and money.
One of the easiest ways to save is to automate it. I realised that when it comes to automatic savings, one needs to just make the decision once and the power of automation will take care of the rest. This is a type of personal savings system where you automatically transfer a specified amount into your savings account at a particular time. This automatic transfer helps in achieving our savings goals and self-discipline.
Andrews isa Lecturer at the University of Professional Studies Accra