How to resist lifestyle inflation after a pay raise

After years of hard work, you’ve landed a well-deserved pay raise. It’s a fantastic feeling, a reward for your effort and dedication. But before you start planning that dream vacation or splurge on the latest gadgets, there’s something to be mindful of – lifestyle inflation.

What is lifestyle inflation?

Lifestyle inflation is defined as the tendency to spend more money as your income increases. It might start subtly – that daily kopi at the hawker centre just isn’t enough anymore, fancy lattes every morning become the norm, or weekend dim sum outings turn into Michelin-starred experiences. These seemingly small changes can quickly chip away at your raise, leaving you trapped in a cycle of ever-increasing expenses.

This phenomenon is particularly prevalent in a competitive city like Singapore, where keeping up with appearances can make one feel like they are in a rat race. But remember, lifestyle inflation can derail your long-term financial goals, like saving for your retirement or that dream HDB flat.

So, how do you resist the urge to splurge and make your raise truly work for you?

• Embrace budgeting: Even with a raise, a budget is your financial roadmap. Learn how to budget your salary with free budgeting apps¹ or simple spreadsheets. They can help you track your income and expenses, identify areas where you can cut back, and allocate your extra income wisely. Budgeting can be fun, and remember to stick to it at the end of the day.
• Prioritise needs over wants: Differentiate between essential expenses like rent and groceries, and impulse purchases like the latest gadgets or a cheap flight ticket. Focus on fulfilling your needs first, then use any remaining money for well-considered treats. The conventional 50/30/20 rule² is a great guideline to follow so that you know how to spend your salary wisely.
• Automate your finances: Set up automatic transfers to a high-interest savings account or investment account. This “pay yourself first” approach ensures you save consistently, reducing the temptation to spend that extra cash. Besides savings, you can even automate bill payments and insurance premiums so that you consistently contribute to your funds.

Investing for your future

Now that you’re saving more, consider investing your extra income to grow your wealth:

• Singapore Savings Bonds (SSBs)³: These government-backed bonds offer guaranteed returns for customers with low investment risk tolerance, making them a great starting point for beginners.
• Stocks & ETFs (Exchange Traded Funds): Investing in companies through stocks or ETFs⁴ can lead to potentially high returns over the long term, but remember, this comes with market fluctuations.
• Robo-advisors: These automated investment platforms⁵ create diversified portfolios based on your risk tolerance and goals, making investing more accessible.
• Unit Trusts: Professionally managed funds⁶ invest in various assets like stocks, bonds etc, offering a broader range of investment opportunities.

A raise is a great opportunity to take control of your financial future. Resist lifestyle inflation and invest in your future, not just your current lifestyle. By following these tips and exploring investment options like term life insurance, you can make your raise truly work for you and unlock your long-term financial goals.

Get protection with Term Life insurance

While you’re busy building your wealth, consider protecting it with term life insurance⁷. Term life insurance is one of the ways to ensure your loved ones are financially secure in case of an unforeseen event. Choose a plan that fits your budget and financial goals. With FWD Term Life Plus⁷, you can tailor your coverage according to your needs and goals, and get covered up to S$1.5 million.*

*Terms and conditions apply.