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How Can (Wise) NRIs Avoid Lifestyle Inflation?

Shoes, bags, watches, cars and more.. There are so many things to buy. If you have the money, it is easy to succumb to temptation and increase spending on luxuries.

Lifestyle inflation means spending more on wants when one’s income increases. So if you get an increase of Rs. 10,000 per month and you spend all of it in lifestyle expenses, you are experiencing lifestyle inflation.

NRI Lifestyle Inflation

When NRI go abroad for work, your income level increases. Some people get an expatriate package which means the salary is significantly higher. In some cases, expenses such as housing and schooling are taken care of.

This leads to more disposable income in one’s hands.

Moreover, there is easy access to more branded stuff. You see people around you wearing the latest (read expensive) sports shoes and driving fancy cars. It is easy to get tempted and imitate the lifestyle of those around you. You spend all the extra money you are earning on attaining a certain lifestyle.

Instead of inflating your expenses, if that NRI had invested the extra money, you would have contributed to your financial goals.

Lifestyle inflation can lead to problems  

  • Reduced savings which can affect your investments
  • Difficult to adjust to lifestyle deflation when you lose your job or have to go back to India
  • May not achieve financial goals such as retirement funding

How Can You Curb Lifestyle Inflation as an NRI

1) NRI Should try To Maintain a Lifestyle Similar to the one in India

Yes, it may not always be possible to manage within the budget you had in India. Many countries like Singapore or UK have a higher cost of living.

Design a budget that caters to your standard of living and at the same time leaves enough for saving and investment.

For example, in Singapore, you can travel almost everywhere using MRT. Instead of a day out at the mall and getting tempted to buy stuff, you can go to the many parks and open spaces that are designed for recreation.

Bw in Singapore you have Mustaffa Mall 🙂 not sure about other places.

There’s a difference between Lifestyle & Quality of Life. THINK

wiseNRI

2) Do Not Imitate Your Colleagues, Friends and Neighbours

Your colleague might go on an overseas trip every quarter and the neighbour might have joined the shiny new gym. You need not do the same. Do you really need an overseas trip every quarter? Can you workout at home or your building gym or in the park outside? You need not buy a new SUV just because your “Indian” friend bought it.

Think of your needs and priorities and spend wisely.

Somebody will always be buying something new and you will never be able to keep up with all them but just end up depleting your cash reserves.

Must Read – Mr NRI don’t spend for “Keeping up with the Joneses”

3) Define your LIFE Goals

Think of what you really want to achieve in life. What will make you satisfied and truly happy? List these down. Once they are set and written down, you will understand how much income you need for the future.

It might also make you realise that buying the latest car or going on foreign trips are not going to make you content in life.

On the other hand, if you realise that a big foreign trip every year is what is going to make you happy, you will manage your expenses in such a way that you have enough money to take care of it.

4) Define your FINANCIAL Goals

As part of the financial plan, you have to set up short-term, medium-term and long-term financial goals. You can then associate them with your life goals. Once your goals are set, you will be forced to work towards them.

For e.g. if your short term goal is to create an emergency fund, you will save more each month and stock it for the emergency fund.

If your life goal is to retire by 50 and dedicate yourself to social service, your long-term goal should be to ensure that you save and invest enough to build a retirement fund so that you can fulfil your life goal.

Check – Financial Planning for NRIs – how it’s different 

5) Do not make your splurges a routine expense

When your income goes higher, you tend to indulge in your favourite things more often. It then becomes less special. This will lead to unwanted spending and also it does not give you the same happiness.

If you read economics in school days – I am talking about the law of diminishing marginal utility. Check this video 🙂

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NRI Lifestyle Inflation

Law of Diminishing Marginal Utility

So even if you can afford it, try to keep the frequency of buying it less.

6) Increase your savings and investments

Mr NRI – if you get a raise or a bonus, do not use it to buy yet another Fossil or Tissot watch.

Put a major part of it in a sound investment option. 3-5 years down the line, the watch will be old, but the investment would have grown in value.

If you get a 10% raise, increase your retirement savings by 10%. (5 easy steps for NRI Retirement Planning) This will force your take-home pay to be the same and you will not be tempted to spend it and at the same time, your dream of financial freedom will be fulfilled sooner.

NRI Lifestyle

7) Check your expenses regularly

Keep a watch on your expenses regularly. You might have unknowingly increased your expenses.

For example, a Starbucks coffee every day or weekly shopping excursions can add up to your expenses significantly.

If you see an increase in spending and reduced investments, you have to curb your lifestyle to manageable levels.

Tip – Most of the people spend 1-2 hours on the smartphone, please download any good app of budgeting. 

8) Pay off your debt

Do you have a home loan or a personal loan? As you reach your retirement age, you have to pay off your debts. It might be a good idea to increase the EMI payment or prepay the personal loan when you get a bonus or unexpected profits.

You will save on interest payments. Moreover, your finances will be more flexible and if there are any financial emergencies, you will be able to take care of them better.

As an NRI, you may be able to give a comfortable life to your family. You might be able to buy things that you had dreamed of.

There is no problem with improving one’s lifestyle. But one has to remember not to take it to the extreme.

Do remember, money cannot buy happiness. (most of the times)

Curb lifestyle inflation to live a financially stress-free life and a financially secure life.

Check – 6 Personal Financial Habits of Successful NRIs

I know it is not easy to share such things with friends or spouse but if you think this can help you or them – take the risk of sharing 🙂

Please share your experiences in the comment section – if you can share any tip, that will really help fellow NRIs.

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • Ganapathi reddy says:

    Can US citizens Indian origin file ITR in India on their Indian income

    • Armaan says:

      Hi Ganapathi,
      Yes, you can.

  • aman says:

    I live in Kuwait and my sister in Chennai, we both want to start a joint account in India . what should we do

    • Smiley says:

      Hi Aman,
      Consult with the bank.

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