By The Advocates
The large amounts of money that our government has spent on pandemic relief and is proposing to spend on infrastructure projects has raised some serious concerns about inflation. But now that the country has started to reopen, lifestyle inflation should be a more immediate concern for most folks.
After a year of lockdowns, cancelled vacations, and missed celebrations, we’re all excited to enjoy life a bit more. Many of us have also transitioned to new, more lucrative careers or are experiencing household budget surpluses due to staying home. These tips will help you manage your enthusiasm and money flow so that you don’t do any long-term damage to your financial planning.
1. Review current expenses.
Any time your cash flow changes is a good time to review your budget – or start making one.
Before you reward yourself with new expenses or big-ticket purchases take a look at what you’re already spending each month. With extra money coming in, you might have an easier time paying for that gym membership you never use or that motorcycle you never ride. But that doesn’t mean you should keep sinking money into those things. Perhaps economizing in some areas will allow you to spend more money on things that you’ll enjoy more, like a couple extra date nights with your spouse per month or a family trip. Would you feel better about your long-term financial prospects if you were making larger monthly contributions to your retirement accounts?
Remember, keeping a budget isn’t just about cutting back. It’s about making sure you’re getting the most out of your money.
2. Do the math.
If treating yourself to a shiny new TV or a vacation you missed during the pandemic isn’t going to throw off your budget or drive up your credit card bills, then by all means, have some fun.
Where lifestyle inflation can really hit hard is when people just assume their new cash flow can cover new repeat expenses, like extra carry-out meals every week, monthly charges for a couple new streaming subscriptions, or higher monthly payments on a new car. Often the less dramatic the lifestyle change, the less the person is aware of the excess money they’re spending. They might not realize just how out of control their dining budget has become until their credit card statement arrives. Paying a slightly higher insurance premium on a new car might not seem like a big deal until you realize you aren’t putting as much money into your emergency savings account
as you used to.
One reason we resist crunching the numbers on new purchases is that we know the numbers might say “No” or “Not right now.” But the joy you feel from pulling the trigger on an impulse purchase will be short-lived if you’re digging into your retirement savings to pay your mortgage next month.
3. Support your future self.
Speaking of retirement, the lifestyle that we’ll want in our golden years is usually the furthest thing from our minds when we’re thinking about installing a backyard pool or booking a spur-of-the-moment cruise. But all the seemingly small financial decisions you make today add up and compound over time. Spending often leads to more spending. And if that spending makes it harder for you to top off your IRA every year, the stuff you buy might be putting the safety and security of your 80-year-old self at risk.
Before you ramp up your lifestyle expenses to match your higher cash flow, let’s discuss. We want you to get the best life possible with the money you have today, tomorrow, and well into the future.