In a perfectly logical world, getting a $1,000 raise would mean having $1,000 more to save. Unfortunately, it’s clear this world exists only in the land of unicorns and flying dragons. In the real world, some people save almost nothing no matter how much their pay increases.
That can only explain why most surveys reveal that Singaporeans have dismal amounts of savings, and an estimated 44% of Singaporeans workers have no retirement savings, including 31% over age 55.
And as much as many people would quite rightly retort by saying that the cost of living is rising, look around Orchard Road on weekends and you’ll see that many Singaporeans are also spending more and more on dining and entertainment.
Whenever salaries increase, spending tends to increase. The result is that no matter how hard you work or how much progress you make in your career, you’re no closer to financial health and stability, even if you do have nicer clothes and a fancier car. This phenomenon is called lifestyle inflation.
Why does lifestyle inflation happen?
There are many reasons lifestyle inflation happens, but here are some of the more common ones:
Keeping up with the Joneses – In hyper-competitive Singapore, everyone’s always sneaking glances at their neighbours, trying to suss out if they’re losing out to them.
As your income increases, you tend to start associating with wealthier coworkers, and your social environment undergoes a transformation, subtle though it might be at the start.
While a night out with friends used to consist of satay and beer at a kopitiam, at your new banking job your colleagues won’t touch drinks not made by anyone other than a certified mixologist.
And while your Casio digital watch might have received compliments from your hipster friends, it’s sure to raise a few disapproving eyebrows at some stuffy corporate meeting.
You take on more responsibilities – When you’re earning $1,500 a month, there’s no need to even think about buying a car or a home. In fact, just getting to the end of the month without having to borrow money can be a victory.
But as your pay rises, you start seriously considering purchasing big ticket items, and obviously this is all going to eat into your savings.
The cost of owning a BMW can be something like $24,500 a year. This means that if you buy such a car on an annual salary of $50,000 (well above the median individual income by the way), you’ll have almost the same amount left over as a guy without a car who earns only $24,000 a year.
Treating yourself too much – The more you earn, the less you panic about being poor and the more you succumb to “treating yourself”. After all, it’s only right that you enjoy the money you’ve slaved away to earn, right?
The problem is, people often go overboard when they feel wealthy enough to relax about money. In the banking and legal industries, it is normal for even fresh grads to own several designer bags costing anywhere from $3,000 to $5,000.
Starting salaries are typically about $3,000 to $5,000 a month in these industries, which means more than a few people are willing to spend the equivalent of a whole month’s salary to turn their arms into advertising space.
Getting careless with your money – People get careless when they know they won’t starve to death if they don’t curb their spending. While in the old days you might have watched the clock like a hawk to ensure you didn’t miss the last bus, these days you find yourself taking cabs because of poor time management or simply because you’re too tired.
And you get your daily coffee from Starbucks instead of the kopitiam down the street not because you like the taste but because you can’t be bothered to walk 100 metres just to save a few bucks.
The worst thing about this kind of spending is that it does little to improve the quality of your life. As a result, you might end up still feeling broke despite working longer and harder for your money.
How do you stop the madness?
If you’ve been living on a salary that would have been illegal in countries with a minimum wage, some degree of lifestyle inflation is inevitable and probably better for your health and sanity.
This means you can finally stop jumping over the MRT gantries and sneaking home biscuits from the office pantry so you won’t have to miss dinner. But beyond a certain degree, lifestyle inflation just gets ridiculous.
The good thing is that lifestyle inflation really isn’t that hard to keep in check so long as you’re conscious of it. If you could survive on a smaller amount before, there’s no reason you can’t do so now.
Just remember that you’re the same person you were before, even with a few extra dollars in the bank. Yes, fortunately or unfortunately, you’re still you, no matter how big your car.
Have you ever fallen into the trap of lifestyle inflation? Share your experiences in the comments!
The post How Singapore's Lifestyle Inflation Keeps You Poor Even As Your Income Rises appeared first on the MoneySmart blog.
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