MONEY MATTERS
40 | SHARES | 24 May 2018
Helping you with personal finance issuesInvesting rather than spending extra cash could help you achieve your financial goalsWhy you should avoid
‘lifestyle inflation’
W
e’ve all read stories
about people who
ĞĂƌŶƚƌŝƉůĞĮŐƵƌĞ
ƐĂůĂƌŝĞƐLJĞƚƐƟůůŵŽĂŶĂďŽƵƚƚŚĞ
ĚŝĸĐƵůƚLJŽĨƉĂLJŝŶŐďŝůůƐŽƌƐĂǀŝŶŐ
ƵƉĨŽƌƚŚĞĨƵƚƵƌĞ͘
/ĨLJŽƵ͛ƌĞŶŽƚůƵĐŬLJĞŶŽƵŐŚƚŽďĞ
ĂŚŝŐŚĞĂƌŶĞƌ͕LJŽƵŵŝŐŚƚǁŽŶĚĞƌ
ŚŽǁƚŚŝƐĐŽƵůĚƉŽƐƐŝďůLJŚĂƉƉĞŶ͘
ůĂƌŐĞƉĂƌƚŽĨŝƚŝƐĚŽǁŶ
ƚŽƐŽŵĞƚŚŝŶŐĐĂůůĞĚ͚ůŝĨĞƐƚLJůĞ
ŝŶŇĂƟŽŶ͛͘ƐƉĞŽƉůĞĞĂƌŶŵŽƌĞ
ŵŽŶĞLJƚŚĞLJƚĞŶĚƚŽďƵLJŵŽƌĞ
ĞdžƉĞŶƐŝǀĞƚŚŝŶŐƐ͕ƌĂƚŚĞƌƚŚĂŶ
ƐĂǀŝŶŐƚŚĞĞdžƚƌĂĐĂƐŚĨŽƌůŝĨĞ͛Ɛ
ĞŵĞƌŐĞŶĐŝĞƐŽƌƚŚĞŝƌƌĞƟƌĞŵĞŶƚ͘
It’s a trap that results in people
ƐƚƌƵŐŐůŝŶŐƚŽƉĂLJŽīĚĞďƚƐĂŶĚ
ĨĂŝůŝŶŐƚŽƌĞĂĐŚƚŚĞŝƌĮŶĂŶĐŝĂů
ŐŽĂůƐĂƐƐŽŽŶĂƐƚŚĞLJŚŽƉĞĚ͘
͚DĂŶLJƉĞŽƉůĞďĂƐĞƚŚĞŝƌůŝĨĞƐƚLJůĞĂŶĚƚŚĞůĞǀĞůŽĨƚŚĞŝƌ
ƐƉĞŶĚŝŶŐĂƌŽƵŶĚƚŚĞŝƌŝŶĐŽŵĞ͘
They spend whatever they earn
ĂŶĚ͕ƋƵŝƚĞŽŌĞŶ͕ŐŽŝŶƚŽĚĞďƚ
ĂŶĚĞŶĚƵƉƐƉĞŶĚŝŶŐŵŽƌĞƚŚĂŶ
ƚŚĞLJĞĂƌŶ͕͛ƐĂLJƐWĂƚƌŝĐŬŽŶŶŽůůLJ͕
ĐĞƌƟĮĞĚĮŶĂŶĐŝĂůƉůĂŶŶĞƌĂƚ
ŚĂƐĞĚĞsĞƌĞ͘
͚/ƚŝƐƵŶĚĞƌƐƚĂŶĚĂďůĞƚŚĂƚƚŚŽƐĞ
ǁŚŽŚĂǀĞŝŶĐŽŵĞŝŶĞdžĐĞƐƐŽĨ
ƚŚĞŝƌďĂƐŝĐůŝǀŝŶŐĐŽƐƚƐǁĂŶƚƚŽ
ƐƉĞŶĚŵŽŶĞLJĂŶĚĞŶũŽLJƚŚĞŝƌ
ůŝĨĞƐƚLJůĞƚŽĚĂLJ͘,ŽǁĞǀĞƌ͕ŝŶƚŚĞ
ǁŽƌĚƐŽĨ:ŽŚŶ&<ĞŶŶĞĚLJ͕͞dŚĞ
ƟŵĞƚŽƌĞƉĂŝƌƚŚĞƌŽŽĨŝƐǁŚĞŶ
ƚŚĞƐƵŶŝƐƐŚŝŶŝŶŐ͛͘͟IS IT REALLY THAT
WRONG TO ENJOY MY
NEWFOUND WEALTH?
zŽƵŵŝŐŚƚƚŚŝŶŬŝƚ͛ƐƉƌĞƩLJďŽƌŝŶŐƚŽƐƋƵŝƌƌĞůĂǁĂLJĞǀĞƌLJĞdžƚƌĂ
pound you earn when your
ǁĂŐĞƐŝŶĐƌĞĂƐĞ͕ďƵƚŝƚ͛ƐƌĞĂůůLJ
ŝŵƉŽƌƚĂŶƚƚŽƚƌLJƚŽďĂůĂŶĐĞLJŽƵƌ
ůŽŶŐͲƚĞƌŵƐĂǀŝŶŐŐŽĂůƐǁŝƚŚ
ƐƉĞŶĚŝŶŐŵŽŶĞLJƚŽĚĂLJ͘
ůƚŚŽƵŐŚLJŽƵŵĂLJŚĂǀĞĞdžĐĞƐƐ
ŝŶĐŽŵĞŶŽǁ͕ƚŚŝƐŵĂLJŶŽƚĂůǁĂLJƐ
ďĞƚŚĞĐĂƐĞ͚͘zŽƵŶĞĞĚƚŽďĞ
ƉƌĞƉĂƌĞĚĨŽƌǁŚĞŶLJŽƵƌŝŶĐŽŵĞ
ĨĂůůƐ͕ƉĞƌŚĂƉƐŝĨLJŽƵůŽƐĞLJŽƵƌ
ũŽďŽƌǁŚĞŶLJŽƵƌĞƟƌĞ͕ŽƌŝĨ
LJŽƵƌĞdžƉĞŶĚŝƚƵƌĞŝŶĐƌĞĂƐĞƐ
ĂŌĞƌďƵLJŝŶŐĂŚŽƵƐĞ͕ŚĂǀŝŶŐ
ĐŚŝůĚƌĞŶŽƌŐĞƫŶŐĚŝǀŽƌĐĞĚ͕͛
ĞdžƉůĂŝŶƐŽŶŶŽůůLJ͘
LJĞŶũŽLJŝŶŐƚŽĚĂLJĂƐǁĞůůĂƐ
ƉůĂŶŶŝŶŐĨŽƌƚŽŵŽƌƌŽǁ͕LJŽƵĐĂŶ
ŚĂǀĞŵŽƌĞĐŽŶĮĚĞŶĐĞƚŚĂƚLJŽƵƌ
ĨƵƚƵƌĞǁŝůůďĞĮŶĂŶĐŝĂůůLJƐĞĐƵƌĞ͘
ZĞƐĞĂƌĐŚƐƵŐŐĞƐƚƐƚŚĂƚƚŽ
ŐĞŶĞƌĂƚĞĂŵŽĚĞƐƚĂŶŶƵĂů
ƌĞƟƌĞŵĞŶƚŝŶĐŽŵĞŽĨάϭϬ͕ϬϬϬ
ĂďŽǀĞƚŚĞƐƚĂƚĞƉĞŶƐŝŽŶ͕LJŽƵ
need to have saved around
άϮρϬ͕ϬϬϬʹĂŶĚƉŽƐƐŝďůLJŵŽƌĞƚŽ
ďĞŽŶƚŚĞƐĂĨĞƐŝĚĞ͘HOW DO I AVOID
LIFESTYLE INFLATION?
džƉĞƌƚƐƌĞĐŬŽŶĞǀĞƌLJŽŶĞƐŚŽƵůĚ
ďƵŝůĚƵƉĂƐĂǀŝŶŐƐƉŽƚƚŚĂƚǁŝůů
ĐŽǀĞƌĨŽƵƌƚŽƐŝdžŵŽŶƚŚƐŽĨ
ĞƐƐĞŶƟĂůŽƵƚŐŽŝŶŐƐ͘dŚŝƐƐŚŽƵůĚ
ďĞŬĞƉƚŝŶĂŶĂĐĐĞƐƐŝďůĞƐĂǀŝŶŐƐ
ĂĐĐŽƵŶƚƐŽLJŽƵĐĂŶǁŝƚŚĚƌĂǁ
ŝƚŝŶƚŚĞĐĂƐĞŽĨĂƐŚŽƌƚͲƚĞƌŵ
ĞŵĞƌŐĞŶĐLJ͘
zŽƵƐŚŽƵůĚĂůƐŽďĞƉƵƫŶŐ
ŵŽŶĞLJĂǁĂLJĨŽƌLJŽƵƌůŽŶŐĞƌͲ
ƚĞƌŵĮŶĂŶĐŝĂůŶĞĞĚƐʹǁŚĞƚŚĞƌ
ƚŚĂƚ͛ƐďƵLJŝŶŐĂŚŽŵĞ͕ƉĂLJŝŶŐAs people earn more
money they tend to buy
more expensive things,
rather than saving the extra
cash for life’s emergencies
or their retirement