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For some hard-working individuals, the new year may have brought with it a pay rise – while you can and should enjoy the newfound financial freedom a pay rise offers, Virgin Money’s money-saving expert, Alina Jaffer, has teamed up with Financial Therapist Vicky Reynal and Natalia Coe of The Money Charity to define lifestyle inflation and share some steps you can take to help avoid it.

What is lifestyle inflation?

In an ideal world, the more you earn, the more you can spend, right? However, things aren’t quite that straightforward. 

The phenomenon known as ‘lifestyle inflation’ is where your spending and often your expectations of what you think you can spend increases with your salary, while the amount you are saving fails to increase at the same rate.

Vicky adds: “It is tempting when climbing the career ladder to “ride the wave” – enjoying the confidence and newfound financial legroom that often comes with it.”

“The growing sense of confidence and financial security can sometimes become inflated and lead to overspending. For some people this is a result of finally feeling free to indulge in things or experiences that felt out of reach in the past. For others, it results from a desire to belong in a new socio-economic group and match the spending levels of those around them.”

After a pay rise, spending can often become increasingly attractive. Understandably, you might want to reward your career success with a few treats like an item of clothing, meal out or even something larger like a new car. The occasional splurge isn’t an issue, it is when overspending increases to an unsustainable level over a prolonged period of time that it can lead to wider problems.

So, is there a way to enjoy a salary increase at the same time as being a responsible spender? Virgin Money’s money-saving expert, Alina Jaffer, shares the two tips to help you steer clear of lifestyle inflation:

  1. Stay bang on budget

Alina says: “Being strict with your budgeting is the simplest and most effective way of combating lifestyle inflation. Ensure you are transferring money from your current account into your various savings accounts each pay day, whether that’s an ISA, a pension or any other kind of savings account, before you go about budgeting for the rest of the month. Whatever is left in your current account can then be shared out across your other outgoings, but your savings won’t be overlooked. 

“Make life even easier for yourself by using the budgeting tools available to you – for example the Virgin Money current account has a clever tagging functionality so you can see exactly where you are spending.”

Vicky adds: “Career progression might give you access to more money, and that is an opportunity to re-ask yourself the question about how much you want to save or spend, rather than a reason to spend more. It can be an opportunity to redefine your financial objectives (i.e. buy a house instead of a flat), or create new ones (e.g. increase pension contribution, make an investment).”

  1. Break bad habits

Alina comments: “One of the most important steps towards making better money decisions is to understand where and why you are spending. Bad habits can be easy to pick up but by re-evaluating your spending patterns you can start to tackle the problems.”

For example, Thursday evenings between 8-9pm tend to be the peak time for online shopping.¹ Young people are 48% more inclined to buy something after seeing a social post about it; women are 29% more likely. A pay rise, combined with additional social media pressure to spend can see many falling victim to lifestyle inflation.² 

Try keeping a money diary to see if you can spot your own trends. Are you influenced by what you see on social media or are you an emotional spender? Try making a list of cost-free treats instead, like an episode of your favourite TV show, an endorphin-boosting run or a call to a good friend.

Natalia adds: “‘Emotional spending is something a lot of people do. Everyone has different triggers – for some people, it’s if you’re going through a challenging time, others might spend more to celebrate if they’re going through a great period. It’s important to acknowledge that you have that trait so you can manage your money accordingly.”

“Budgeting is a good way to do that because it’ll give you a good overview of where your money is going – then you can identify your own triggers.”

For more information on the budgeting tools available visit Virgin Money’s current accounts page.

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