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Today we will discuss about lifestyle and lifestyle inflation .
What does lifestyle mean to you ?
It is a manner of living that reflects the person’s values and attitudes. Ranvir and Vikram are two friends . Ranvir lives in a 6 BHK bungalow whereas Vikram lives in a 1 BHK flat . Ranvir drives an SUV whereas Vikram drives a 2 wheeler .
Ranvir buys clothes at malls and eats at high end restaurants whereas Vikram shops at small end shops and eats street food . Both of them have to eat ,live and travel but the manner in which the individual execute these decisions is called lifestyle .
There are various factors affecting their decisions which includes peer pressure , economic conditions etc .
It is very difficult to maintain a same lifestyle through out your life . In this era of social media , At some point in life he/she will think to upgrade his lifestyle and choices due to various external factors .
India’s existing CPI (Consumer price inflation) is 3.93 percent as on May .26 . It measures the changes in price of a basket of goods and services consumed by an average household like food ,health , housing , medical ,education etc .
But if you want to upgrade to something premium that would also cost extra ,which is not included in CPI . This is called Lifestyle inflation.
With annual increment in salary also comes the expectation of lifestyle upgradation . Earlier , you used to have tea at a road side stall now you would try to have it in a cafe. The experience of having that tea in an air conditioned cafe will come at a premium cost which will eat a part of your increment.
Also check out : Frugalism for a middle class Indian
Similarly, you would be tempted to upgrade other portions of your lifestyle too . There’s no shame to bring comfort in your life but catapulting everything at once is a miscalculation .
Ask yourself these questions before upgrading your lifestyle
- Is this upgrade improving my quality of life or just my social image?
Will the SUV that you are thinking to buy will genuinely create comfort and enhance utility or this is just to show off to other people .
- Will this new expense become a permanent commitment?
The expensive car you are thinking to buy will also have increased operational cost like service , maintenance and fuel along with it .
- Am I upgrading because my income increased or because my needs changed?
Is buying a new spacious home a Impromptu reaction to your promotion or you genuinely feel it is a size or a location requirement.
- If my income stopped increasing for the next 5 years, would I still be comfortable maintaining this lifestyle?
Generally the lifestyle you are buying is not dependent on your existing salary it is dependent on your future salary growth. In any case you get laid off or your salary doesn’t increase up to your expectation then you may not be able to sustain that lifestyle.
- Is this upgrade buying me more freedom or more responsibilities?
The lavish house you are going to buy just because you got promoted or your friend bought one will surely trap into vicious cycle of loans and emis for 20 odd years of your life . Hence , instead of feeling the freedom you will sense pressure for obligations.
- What percentage of my income increase is going towards my future?
Generally after giving a good piece of your income to your lifestyle, you would barely be left with have any capital for investment to achieve the goal you had set up when you first got the job .
For a typical middle class Indian apart from salary growth it is also very important to maintain and sustain lifestyle upgrade.
A salary hike is meant to enhance life not just your bank balance . You are bound to enjoy the rewards of a salary hike but converting your entire hike into an expense would be a blunder .
As a middle class Indian we have to maintain a sizeable gap between earning and spending that gap would be your stepping stone for retirement .
Instead of upgrading your lifestyle each year give your income some space to grow . Review your major lifestyle upgrades , savings and investment every 3 years make sure your lifestyle is not growing faster than your income .
Now we will check out two scenarios to make you understand the impact of lifestyle upgrade on your income
Starting salary: ₹30,000/month
Annual salary increment: 10%
Starting lifestyle expense: ₹21,000/month (70% of income)
Case 1: Lifestyle upgrade every year (expense grows 10% every year)
| Year | Monthly Salary | Monthly Expense | Monthly Saving | Saving Rate |
|---|---|---|---|---|
| 1 | ₹30,000 | ₹21,000 | ₹9,000 | 30% |
| 3 | ₹36,300 | ₹25,410 | ₹10,890 | 30% |
| 5 | ₹43,923 | ₹30,746 | ₹13,177 | 30% |
| 10 | ₹70,738 | ₹49,517 | ₹21,221 | 30% |
Over here your savings remain constant at 30% percent ,whereas your lifestyle inflation eats up the majority of the income .
Case 2: Lifestyle Upgrade Every 3 Years (10% salary increment, lifestyle reviewed every 3 years)
| Year | Monthly Salary | Monthly Expense | Monthly Saving | Saving Rate |
|---|---|---|---|---|
| 1 | ₹30,000 | ₹21,000 | ₹9,000 | 30% |
| 3 | ₹36,300 | ₹21,000 | ₹15,300 | 42% |
| 5 | ₹43,923 | ₹23,100 | ₹20,823 | 47% |
| 10 | ₹70,738 | ₹27,951 | ₹42,787 | 60% |
Over here you can see that if you delay your lifestyle upgradation for 3 years your savings rate increases .
Hence , we can conclude that it is not recommended to completely avoid lifestyle upgrades , but to make sure not every income hike vanish into your expenses
MIDDLECLASSINVEST 
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