Imagine how you use water when there’s a 24/7 supply versus when a municipal water cut is imposed. In scarcity, you automatically become more careful, even saving more than required.
The same principle applies to money. During our working years, income flows regularly; in retirement, it dosen’t.
When there is a meteoric rise in money inflow – through promotions, better opportunities, side hustle, bonuses, business profits, sudden windfalls like lottery wins or inheritance, there is a visible upgrade in lifestyle. Spending quickly normalizes to the new level, and what once felt like luxury soon becomes necessity. Frequent dining out & travelling, buying property impulsively, mindless luxury purchases like gadgets used rarely, upgrading cars prematurely – these are classic signs of lifestyle creep. It is a mental trap as income rises but expenses rise faster than income and savings rate decline.
For example, an individual’s salary doubles from Rs.1 lakh to Rs.2 lakh but his expenses rise faster from Rs.50,000 to Rs.1.25 lakh, a 150 per cent increase. His earlier saving rate of 50 per cent of his income has declined to 37.5 per cent.
Alongside lifestyle inflation, recency bias and social comparisons influence non-essential spending as if there is no tomorrow.
Yet, good times in life are exactly the times to build a lasting financial foundation. The goal should not be just to become wealthy, but financially unbreakable, resilient.
Today’s world has become increasingly unpredictable – be it jobs, business, health, even global stability can shift overnight! To withstand these shocks, finances must be in order. While money may not solve every problem, it certainly cushions the blow of life’s curveballs — sudden job loss, critical illness, death of earning member, irreparable business loss, etc.
Financial stability not only provides peace of mind but also nurtures healthier relationships and the freedom to pursue purpose beyond survival.
Remember, Noah prepared the Ark when it wasn’t raining!