Today’s tip is about “lifestyle inflation.” If you’re not familiar with the term, it’s when a person’s income increases and they in turn increase their spending. Makes sense, right? You make more money so you can afford to spend more. This may be true for some people but, if you’re struggling with debt, succumbing to lifestyle inflation can hold you back.
A great strategy to get out of debt is to avoid lifestyle inflation. If you’re fortunate enough to get a boost in income, then you’d be better off acting like you didn’t, and continue to minimize your spending as you had before. This way you can apply more money towards your debts. Inflate your debt repayment, not your discretionary spending.
If you succumb to lifestyle inflation, you’ll only prolong your debt situation. Maintain the same budget that you had with your lower income, and apply your extra money to your debts. You may also want to add some of it to your savings or emergency fund each month. Rather than spending your new found cash on unnecessary items, the key is to put this money to best use and work towards becoming debt free.
Use ACCC’s Budgeting Worksheet to help you manage your monthly budget and keep your spending down.
For those of you working towards paying off student loan debt, participate in this month’s poll question: Were Your Student Loans Worth It?