You landed your first job right after college graduation and already find yourself moving on up? Three cheers for you! Advancing along your career path can help make your professional life super satisfying. The pay raise that often comes with a promotion doesn’t hurt either. Something sneaky that will actually hurt your financial future? Getting used to that nicer lifestyle that comes with your new paycheck… and then actually overspending or not saving the right amount of money. We talked with Amanda Wood from SoFi, a company that helps graduated students refinance loans, to learn more about lifestyle inflation and how to avoid letting it hamper your financial future.
WHAT’S LIFESTYLE INFLATION?
Though it sounds kinda obvious, Amanda assures us that tons of young pros and dedicated careerists have no idea what it is, which makes it totally hard to prevent it from happening to you. She says, “Lifestyle inflation is an increase in your overall spending habits when your income goes up. For example, let’s say you’ve grown accustomed to a tight budget. When you get that big raise, you want to treat yourself a little, right? Eating out once a week turns into three times a week, you start shopping at higher scale stores and finally take those vacations you’ve had planned.” Ack, guilty!
WHO’S MOST AT RISK?
Recent grads take note: Amanda says, “Though it’s easy for anyone to fall into the lifestyle inflation trap, recent graduates are MOST at risk.” She clued us in as to why, telling us, “Data shows that more than 2.8 million university grads walked the stage this year — all the way to their first, steady paycheck. And for most grads, who wants to spend that first (seemingly huge) paycheck on repaying student loans or saving for retirement?” Oh girl, we totally understand the need to treat yourself to good Thai food after years of Top Ramen.
Amanda notes, “Between rising rent prices, massive student loan debt and the high cost that can come with an active social life, it’s almost impossible to get out of debt or meet other big-picture financial goals once you fall victim to lifestyle inflation.”
HOW TO AVOID LIFESTYLE INFLATION
Since we love a good silver lining, we asked Amanda about possible solutions for building a solid financial future without totally giving up some of the fun that comes with a salary bump. No surprise, we scored three super helpful takeaways.
- Develop responsible financial habits NOW to secure future financial freedom. Gather all of your assets (savings, investments) and liabilities (loans, debt), then make a realistic budgeting plan you can actually stick to. Amanda’s favorite tip? “Try using a personal finance app (like Mint) to keep track of everything on an ongoing basis so you don’t get behind.”
- Identify your future financial goals and start working toward them. Amanda says, “If you have student loan debt, look into refinancing first. This way, you’ll consolidate your loans into one monthly bill and can save a significant amount of money on interest. Depending on your situation, you may even decrease your monthly payment or shorten the time it takes to pay off your loan.”
- Automate what you can. “Once you know how much you want to put toward savings, investments and debt on a monthly basis, make it easy on yourself by setting up automatic payments and contributions where possible,” Amanda says. This is similar to the “pay yourself first” rule, which says to automatically transfer money from your paycheck or checking account into your savings account either once a month or every payday. Your financial future is worth it, lady.
Have you experienced lifestyle inflation or witnessed it in your social circles? Tell us about it on Twitter @BritandCo.
(Photos via Getty)