Lifestyle change: Goes on a 30-day foreign vacation and another 20 days within India with his wife every year. Travels off-season to cut expenses.
How it can hurt
*In 2017, average monthly expense on travel is Rs 5,000 to Rs 6,000.
*For Taxi: Annual rise in travel expenses is 30-35%.
To be sure, this surge in expenses happens so slowly that it doesn’t pinch. Consumers get comfortable with a certain way of living that makes it difficult to revert to frugal habits. Abhishake Mathur, Head–Investment Advisory Services, ICICI Securities, points out, “Upgrading lifestyle is a joy, but downgrading can be extremely painful.” Having become used to shopping at H&M or Zara, you are not likely to consider stepping into the local apparel retailer. Similarly, you will not be comfortable downsizing from your current sedan to a smaller hatchback.
HOW YOU CAN TACKLE IT
Financial planners insist that having a clear link between one’s investments and goals can prevent wasteful expenses. Identify key goals—retirement, child’s education and marriage, buying a house etc—and create a separate investment bucket for each goal. This provides a sense of purpose to the investment. One is less likely to blow away money on unnecessary spends if one knows it will compromise a particular goal. “To some extent, mental accounting proves helpful in reining in undisciplined expenditure,” says Sadagopan.
Automate savings by putting a bank mandate for SIPs in mutual funds or towards a recurring deposit. This way, a part of your income will automatically be transferred before it can reach your hands. Most financial planners suggest that one should save at least 30% of their monthly income. Sadagopan says, “Once you take care of the savings, it won’t matter much even if you stretch your budget for certain lifestyle spends.”
If you find that you are not in a position to save even 25% of your monthly income, lifestyle inflation has probably already crept in. In this scenario, consider alternate ways you can cut back on expenses. “If certain lifestyle related expenses are unavoidable, find pockets to cut cost elsewhere,” suggests Shah. Do not escalate lifestyle so much that you are constantly under pressure, warns Sadagopan. “The ideal way to avoid falling victim to lifestyle creep is to keep spend a few rungs below what is affordable,” he adds. For instance, Ruchika admits that if she can cut down on her impulsive shopping and frequent travel, she would be able to save around 20% of her income. Even for certain lifestyle spends; you can look at smarter ways to indulge yourself. Parikh and his wife enjoy travelling, and spend almost 30 days in a year travelling abroad and another 20 days travelling within India. However, they travel during the offseason as much as possible and plan their trips well in advance to secure better value from flight tickets and accommodation. Their lifestyle has changed drastically, but the Parikhs have found ways to keep their expenses in check. You should too.
Score yourself on the following basis. Then add up the points to know your score.
A 3 points
B 2 points
C 1 point
1. My credit card bills are
A. Paid in full every month
B. Rolled over sometimes
C. Always rolling as I only pay the minimum amount due
2. A salary bonus means
A. A small treat and the rest is put away as savings
B. Paying off loans and spending the rest
C. A relaxing vacation or shopping spree
A. At least 30% of my income every month
B. Whatever I can manage every month
C. Nothing after meeting all expenses
4. When shopping
A. I hunt for bargains, even for small-ticket items
B. I don’t mind exceeding my budget at times
C. What bargain? I always prefer premium brands
5. My budgeting habits
A. I track all expenses to keep out flab
B. I check my bank balance at the end of the month
C. No time or inclination to maintain a budget
6. A typical weekend involves
A. Catching the latest movie or spending time with family
B. Trying out new restaurants and occasional shopping spree
C. Heading out of town with friends or family
7. Every rise in income has meant
A. Rise in expenses and savings
B. Rise in expenses but not savings
C. Rise in expenses and less savings
More than 18
You run a tight ship but still enjoy a good lifestyle. You have your goals in sight. Keep at it and great rewards could follow.
You are not a spendthrift, but your lifestyle is not healthy either. Some adjustments may be required to get your finances in shape.
Less than 12
You are living way above your means and have little control of your finances. Urgent corrective steps required.