Lifestyle Inflation What it is, what causes it, and what you can do about it.

When did you last upgrade your cellphone? Three months back? Andthe previous one? Another six months? Maybe you're sporting grandertags on your clothes and watches, driving a more expensive car, andspending more on multiplex movies as well. If a growing economy hasput more money into your hands, it has also brought along apropensity to spend more than you require. It's inflation of adifferent kind, lifestyle inflation.

Says Rohit Sarin, Partner, Client Associates: "People's incomeshave gone up. Along with this, attitudes towards spending and savinghave also changed." Another reason for lifestyle inflation is theeasy availability of credit. Credit cards, debit cards and easyfinance schemes have made it possible for the average salaried personto buy items that were earlier beyond reach. So, you'd rather buy aSantro car that costs around Rs 3,60,000 than the ubiquitous Maruti800, which costs around Rs 2,31,000, simply because you can afford topay the EMIs (equated monthly instalments).

While you're welcome to spend your money, it does throw yourfinancial planning into disarray, and this is something financialplanners are struggling with. The way out? Says Ranjeet Mudholkar,CEO, Financial Planning Standards Board, India: "The emphasis onlifestyle costs has to be worked out at an individual level with theplanner. Plans need to be changed to incorporate lifestyle changes."It is therefore important to revisit your financial plans on aregular basis to ensure that you spend sensibly.

But spend and sensibility don't often go together, so here are afew tips. First, try and increase your savings; second, get intoinvesting in assets that are expected to give returns above theinflation rate (such as equity, if you can stomach stock marketchurns, or property). Most important, show some restraint; it's yourmoney, after all.

THE COST OF LIVING IT UP

March 2004 March 2005

Total Annual Income (Rs) 20,00,000 24,00,000

Annual Expenses (Rs)

EMIs (House, Car, etc.) 3,60,000 3,60,000

Cars (Petrol, Maintenance, etc.) 1,50,000 1,80,000

Household Expenses 1,56,000 1,98,000

House Maintenance 25,000 30,000

Domestic Help 48,000 54,000

Kids' Education 1,20,000 1,20,000

Medical Expenses 36,000 50,000

Clothes 1,25,000 2,00,000

Utilities (Phone Bills, Electricity Bills, etc.) 1,10,000 1,25,000

Gadgets (Cellphones, TVs, etc.) 90,000 1,20,000

Socialising/ Entertainment 78,000 1,08,000

Holiday/ Travel 2,00,000 2,50,000

Total Expenses 14,98,000 17,95,000

Increase In Expenses 19.82%

The overall expenses of Rajashekhar (name changed), working as amanager in an MNC, has gone up by nearly 20 per cent, well above thenormal inflation (as measured by the change in wholesale price index)of around 5 per cent. The difference is due to the improvement in hislifestyle (as seen in the increase in spend on clothes, gadgets,entertainment and travel) and can therefore be called lifestyleinflation.