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“Lifestyle inflation is a common spending trap that can hinder wealth creation for young women.” – Anonymous
Lifestyle inflation refers to an increase in spending as an individual’s income rises. It causes people to get stuck in a cycle of having enough money to pay their bills every month without any wealth creation plan.
Peer pressure has a lot to do with lifestyle inflation. Income increase is seen as an opportunity to live life like the rich. The same can have a disastrous effect on long-term wealth creation.
Therefore, as a young woman, it is important to be aware of your needs and make sure you are spending just to meet them. Giving in to the pressure to replicate someone else’s lifestyle can bite you hard. So, make sure of your needs and spend accordingly. Here is an example of what lifestyle inflation means;
A the young woman who finished with her NYSC was desirable to find a job; a few years later, she was promoted, which automatically leads to a salary increase. Just because his salary was raised, his consumption also increased to meet his income. He starts updating his wardrobe and even moves to the island, without a plan for his financial future. The question he should ask himself is: and if he loses his job, will he be able to maintain the kind of lifestyle he is living now? And it has savings or an investment to fall back on.
The goal of some young women is to earn, which they spend immediately without thinking about investing or saving. As a young woman, you need to get to a point where you are constantly building resources and finding a balance between living the lifestyle you want.
What young women can do differently to get their finances back on track
1. Reduction of expenses – Get along with little money
For a young woman climbing the professional career ladder, which usually comes with a pay rise, there is every chance she will burst into an increase in expenses and can get worse if not monitored.
This is where budgeting and spending cuts emanate. Having a pay raise can entice you to upgrade your wardrobe, acquire the latest iPhone, and engage in impulse purchases, which if not monitored can lead to failure.
Therefore, if you live from paycheck to paycheck, you need to get along with little money and getting along with little money can be achieved by setting a monthly budget.
Establishing a budget will allow you to track your expenses, spend on your priorities, eliminating what you don’t really need.
2. Set automatic saving – Setting up a nest egg
Once you are done getting along with little money, the next thing to do is nest your egg (savings). Saving is the best way for a woman to reunite her financial life. However, many young women have different mindsets when it comes to setting aside funds for savings. Some believe they have bills to pay, so they don’t have enough funds to set aside for savings.
However, the rescue is not magical, it can be done systematically. For example, you earn two hundred thousand naira a month – all you need to do is automate your savings account so that 20% of your money is deducted from your account monthly.
Once done, pretend to earn 180,000 Naira a month. Before you know it, you’ve saved enough funds to allow for investments, which usually leads to compound interest.
3. Understanding Capital Market Strategies – Play the market wisely
Another thing a young woman needs when it comes to putting her financial life together is to understand the strategies of the capital market, the different asset classes, the risks involved to allow her to build her own investment portfolio. This might sound Greek to some young women; therefore, they believe that investing in the capital market is male.
Before investing in the stock market, it is vital that you have a good understanding of where you are putting your money. Understand the strategies involved in trading, as stocks are volatile in nature, which means it is the nature of the markets that move up and down in the short term.
However, trying to time the market is extremely difficult. One solution is to maintain a long-term horizon and ignore short-term fluctuations.
Also, having a good understanding of investments will help you not get involved in fraudulent investments like MMM / Ponzi schemes.
4. Invest in real estate – Smart money moves
Real estate is a smart money move that young women should take advantage of, instead of spending money on frivolous things.
Investing in real estate is good for any woman, who is looking for opportunities to buy low and sell high for years to come.
However, some young women tend to avoid mentioning real estate, as they find it involves a lot of capital. Furthermore, some have the mindset that they are too young to start investing in real estate.
However, some companies are now making it easy for people to invest in real estate, thanks to which payment in installments is possible. Allowing you to invest in growing areas, i.e. rapidly developing areas where you will benefit from capital appreciation in the years to come.
Bottom line, lifestyle inflation can easily derail your long-term goals. The trap of short-term gratification in the form of luxury convenience can delay your plans to save on investments.
As you add new luxuries to your life, weigh the benefits against your long-term goals. In most cases, you will choose to forgo the convenience of a new lifestyle upgrade in favor of your long-term financial stability.
