- Personal Finance
Avoid the 'income and lifestyle leap' trap
Income and Lifestyle Trap
This year was different because it is a leap year, since we are in the 'leap mode' today we will be focusing on what's known in economics as the wealth effect...what I have termed 'income and lifestyle leap trap.'
The wealth effect is the phenomenon whereby when one receives an increase in the amount of money they have, there is a tendency to feel (perceive) to be wealthier/better off. This feeling leads to people adjusting how they have been living their life to 'match' their increased inflow.
When your salary increases say by $200/month, you are now in a position where you can afford certain things which you couldn't afford before. However, the trap which most people fall into is in increasing their expenditure by more than the increase in the inflow.
A way towards financial freedom is to operate with a virtue called contentment. If you are able to discipline yourself to not change your lifestyle each time you experience an increase in your salary or any other inflows...you can save and invest this increase. Contentment comes from telling yourself...I was doing well before this increase came- so there's nothing which will change if I just 'ignore' that I have an increase.
This wealth effect is what tends to hit people every month end. When people get paid- they experience an inflow which wasn't there the whole month and they feel wealthy. To see this in operation, just go to your nearest mall in the middle of the month at a specific time and then go there same time during month end.
1 Timothy 6:6
"But godliness with contentment is great gain"