How do you reduce your lifestyle costs?
As you climb up the career ladder, your income will increase, and in turn, your spending will also increase. This particular aspect, in financial terms, is called lifestyle inflation. The most evident example of it is when you compare your lifestyle in college to your first job. No doubt, during your college period, you choose the cheapest possible option. You walked everywhere or used public transport, ate at cheaper restaurants and brought your clothes from Bugis Street. However, once you have a full-time job and earn income, your spending increases. You can afford better transportation options, eat at better quality and more expensive restaurants, and buy branded clothing.
If you find that you’re living a very expensive life, then you would want to cut down your expenditure. Many of these high costs are caused by lifestyle inflation. So, how do you reduce your lifestyle costs?
Awareness of Lifestyle Inflation
The first step is to realise that lifestyle inflation is very real. Lifestyle inflation occurs because – if you have more money, you are more likely to spend more. It may also occur because your social circle lives by a certain lifestyle and you are expected to meet those standards. For example, your colleagues drive to office by car. You may be pressured into purchasing your own car to maintain such standards.
Many fail to recognise that lifestyle inflation is real and fail to cut down on their expenditure.
Analyse your Expenses
To get to the heart of lifestyle inflation, you have to analyse your expenses. BUT, before doing that, you have to track your expenses. You can track your expenses using the basic tools – a paper and pen. Or, you could use an Expense Tracking app. The key to effective expense tracking is ensuring you note even the minutest of expenses.
After a week of tracking your expenses, they should be analysed.
- Identify expenses that could qualify as luxury expenses. A luxury expense qualifies as a spending that is non-essential. For example, spending for a meal at a restaurant is a luxury expense.
- Identify expenses that have a cheaper alternative. For example, instead of booking an Uber cab, you can travel by public transportation.
If you plan to cut down your expenditure, analysing your expenses are a must.
Motivate yourself to Spend Less
Motivation plays a massive factor in reducing your lifestyle costs. Switching from the comforts of an Uber cab to public transportation is not easy. Hence, the correct motivation is required. Here’s how you can do that.
- Hold yourself Accountable:
Though you have earned it, you should not be spend-thrifty. It is vital that you are financially responsible if you wish to have a secure future, especially during your retirement years. When you have extra money (thanks to a raise), it’s easy to justify purchasing a new gadget (that you don’t really need). Hold yourself accountable for your spendings, especially when they are for items that you don’t really need.
- Set Financial Goals
An effective way to encourage you to spend less and save more is to have financial goals. Do you plan to buy a two-wheeler? Wish to travel to Europe? You can achieve any of these without reducing your lifestyle costs and saving. The better you save, the closer you are to meeting your financial goals.
- Think about Retirement
The more you save now, the more comfortable you are during your retirement. This should be a major concern for you, regardless of your age. When you retire, you will not be earning income.
Value Experience over Things
From an emotional aspect, you must realise that experiences are more worthwhile over purchasing items. Buying materialistic things that you don’t need will not make you happy.
After a hard’s day of work, you may feel entitled to a fancy meal at a restaurant. However, making your own meal at home and enjoying it is not just wholesome and healthy, it is satisfactory too.
Comparing your Expenses
Compare your expenses before and after you started saving. What are you looking for? You want to check how well you have been saving.
- Has your total expenditure reduced?
- Have you reduced your luxury expenses?
- Have you opted for alternative and cheaper options?
This is simply an effective way to analyse if your strategy is working or not. If you don’t see a major difference, then you have not cut down your expenditure and a re-think of your financial strategy is required.
Use these pointers to reduce your lifestyle expenses. However, do keep in mind that in certain cases lifestyle inflation is inevitable. It’s best to always use your judgement. As your work and family obligations grow, there will be some lifestyle inflation that will occur. For example, getting married and starting your own family may really require you to purchase or rent a house. It is an unavoidable expense.
Cutting down your expenditure and reducing your lifestyle costs is no easy tasks. However, if you are determined to have a more secure financial future, you should do it.
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