“Lifestyle inflation is a common spending trap that can stand in the way of building wealth for young women.” – Anonymous
Lifestyle inflation refers to an increase in spending when an individual’s income goes up. It causes people to get stuck in a cycle of just having enough money to pay their bills every month with no plan for wealth creation.
Peer pressure has a lot to do with lifestyle inflation. Increased income is seen as an opportunity to live life like the affluent. The same can have a disastrous effect on wealth creation in the long run.
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Thus, as a young woman, it is important to be aware of your needs and make sure you spend only to fulfil them. Giving in to pressure to replicate someone else’s lifestyle can bite you hard. So, be sure about your needs and spend accordingly. Here is an example of what lifestyle inflation means;
A young lady who is through with her NYSC was opportune to get a job; few years later, she got promoted, which automatically leads to a salary raise. Just because her salary was increased, her consumption also increased to meet her income. She starts to upgrade her wardrobe and even moved to the Island, without a plan for her financial future. The question she should ask herself is, what if she losses her job, will she be able to maintain the kind of lifestyle she is living now? And does she have a savings or an investment to fall back on.
Some young women’s aim is about earning, which they spend immediately without thinking about investing or saving. As a young woman, you need to get to a point where you are consistently building asset & finding a balance between living the lifestyle that you want.
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What young women can do differently to get their finances on track
1. Cut down on expenses – Getting along on a shoestring
For a young woman climbing the ladder of professional career, which usually comes with a salary increase, there is every possibility that a hike in expenses will erupt and can get worst if not monitored.
This is where having a budget and cutting down on expenses emanates. Having a salary raise can entice you to upgrade your wardrobe, acquire the latest iPhone and engage in impulse buying, which if not monitored can lead to bankrupt.
Therefore, if you are living from paycheque to paycheque, there is a need to get along on a shoestring and getting along on a shoestring can be achievable by setting a monthly budget.
Putting a budget in place will enable you to monitor your expenses, spend on your priorities, while eliminating what you do not really need.
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2. Set up automatic savings – Setting a nest egg
Once you are done getting along on a shoestring, the subsequent thing to do is to nest your egg (saving). Savings is the best way for a woman to get her financial life together. Though, a lot of young women have different mindsets when it comes to putting aside funds for savings. Some believe they have bills to pay, so they do not have enough fund to put aside for savings.
However, saving is not magical, but can be done systematically. For example, you are earning two hundred thousand naira monthly – all you need to do is to automate your savings account in a way that 20% of your money will be deducted from your account monthly.
Once that is done, pretend that you are earning 180,000 Naira monthly. Before you know it, you have saved enough fund to enable investments, which usually leads to compound interest.
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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 understanding the capital market strategies, the different asset classes, the risks involved to enable her to build her own investment portfolio. This might sound Greek to some young women; hence, they believe investing in capital market is masculine.
Prior to investing in stock market, it is crucial to have a good knowledge of where you are putting your money. Understand the strategies involved in trading, as stocks are volatile in nature – meaning it is the nature of the markets to move up and down over the short-term.
Nevertheless, trying to time the market is extremely difficult. One solution is to maintain a long-term horizon and ignore the short-term fluctuations.
Also, having a good knowledge of investment will aid you not to involve yourself with fraudulent investment like MMM/Ponzi schemes.
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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 in years to come.
Though, some young women tend to shy away at the mention of real estate, because they feel it involves a lot of capital. More so, some have the mindset that they are too young to start investing in real estate.
Nevertheless, some companies are now making it easy for people to invest in real estate, whereby you can make payment on instalments. Making it possible for you to invest in growth areas i.e. areas that are fast developing in which you can benefit from the capital appreciation in years to come.
Conclusively, 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 get to save towards investing.
When you are adding new luxuries to your life, weigh the benefits against your long-term goals. In most cases, you will choose to pass up the convenience of a new lifestyle upgrade in favour of your long-term financial stability.
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