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Will You Be Able to Afford Your Lifestyle in 15 Years

Will You Be Able to Afford Your Lifestyle in 15 Years

Retail inflation was as low as 3.66% in August 2015, core while inflation at that time was 4.1%. However, if you look around the overcrowded malls, and observe people's rising expenses, they tell a very different story.

Why do you think there's a mismatch? Blame "Lifestyle" Inflation!

What is Lifestyle Inflation?

Lifestyle inflation is the increase in your standard of living with every hike in income. It is a habit that grows with your income. Sometimes it is wrongly referred to as lifestyle creep (which is a very specific case of lifestyle inflation).

Despite core inflation not burning a hole in your pocket, you keep increasing spends at an alarming rate to improve your lifestyle. A study by Swiss Banking major Julius Baer has indicated a rise in the Lifestyle Index for the Asia Pacific Region in the past year. This is further evidenced by a marked increase in the consumption of high end luxury goods by 11.7%.

Consumption behaviors which propel buyers rapidly increase spending is slowly while bridging the gap with the HNWI and having your second car with branded clothes and accessories along with a couple of club membership is fast catching up.

How expensive will be your Lifestyle in 15 years' time?

There are four basic aspects of considering Lifestyle Inflation for the Indian Middle Class namely:

Exotic or International Holidays: Were quite a far fetched thing in the past but now almost every family in the middle class zone can afford.

Be Prepared: So, account for Rs 27.37 lacs or so for a basic Europe holiday for a family of 3 in 15 years' time which could now cost about Rs. 5 lacs even at 12% total Inflation Rate!

Child Education: With child education inflation more than 15% CAGR, rate of savings need to be pretty high to build a large enough corpus!

Be Prepared: to spend a minimum of Rs 2.30 crore on your child's Harvard University expenses(with lodging) in 15 years' time which is about Rs 30 lakh today.

Health Care Expenses: With the advancement of technology and medication, the mortality rate have gone down significantly in the last 5 years with higher life expectancy and so has risen the expenses in the health care. The medical inflation in India is close to 20% says HDFC ERGO.

An average hospitalization expense of Rs 2 lakh today will cost about Rs 5 lakh in 5 years' time and Rs 12.38 lacs in 10 years' time.

Cost of Convenience: Availing a Kaali Peeli to go home at night was common before booking of private taxis like Ola and Uber gained popularity in India. Of course, the expenses have gone up but the convenience hike is much more.

The following table shows what a 1 lakh per month spend today will look like in 15-30 years.

Now before these numbers give you a heart attack.... You should know that, inflation doesn't increase straight for such long periods. Family structures change, the basket of goods consumed changes based on the family structure and the age of the individual members and their life stage. Further, income growth slows down as well. This is one of the key factors which keeps rising lifestyles in check.

However, that said, keep a watch on lifestyle inflation, it could be the road to eventual penury if left unchecked.

(Main Image: Pinterest)

( About the author: This article has been contributed by Rupanjali Mitra Basu of Big Decisions )

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