Lifestyle inflation: When a bigger paycheck still feels tight

Illustration: TBS

Arman Hossain, a 27-year-old enthusiastic professional, recently received a promotion at a Dhaka-based firm after two years of service. Along with the new title came a 25% salary raise — a significant boost for someone just beginning to find his footing in the city. He expected life to become easier.

However, a month later, it became apparent that nothing had really changed. If anything, things felt tighter. His bank account was still nearly empty before payday, and once again, he found himself borrowing from friends and colleagues.

"I thought the raise would give me breathing space," Arman said. "Instead, I'm somehow back to square one — just with slightly better lunch breaks and some new books which I don't know when I will read."

Arman's experience is far from uncommon. Like many early-career professionals in Bangladesh, he had quietly fallen into a widespread financial trap: lifestyle inflation.

Lifestyle inflation occurs when your spending rises in step with your income. The more you earn, the more you spend — often on things that once felt like luxuries but now seem like essentials: better gadgets, pricier meals, impulsive shopping, or an ever-growing list of subscriptions.

In urban centres like Dhaka, the pressure to keep up is relentless. A friend's new phone, a colleague's weekend trip, or a relative's constant reminder that "you're earning now" — the urge to upgrade becomes hard to resist. For many, a pay raise feels incomplete unless it comes with visible proof of success.

According to a 2023 Investopedia report, around 43% of people globally fail to increase their savings even after receiving a raise. In Bangladesh, the situation is often more fragile.

Most private-sector employees, especially those in their 20s and 30s, operate without strong social safety nets. The moment salaries rise, expenses tend to grow even faster — whether by moving into costlier neighbourhoods or paying for new gadgets in instalments.

And this spending rarely feels reckless. Every purchase is justified: "Just a slightly better lunch," "A phone I genuinely need for work," "Only Tk 1,200 per month — what's the harm?"

But one small indulgence quickly becomes a habit. Over time, the raise disappears into consumption rather than contributing to long-term financial security.

Beyond merely cutting costs, it's essential to spend your raise meaningfully by investing in personal growth and future opportunities. They are not indulgences—they're smart, long-term investments in yourself, often yielding greater value than the temporary thrill of another gadget or brunch.

Adding to the challenge is the rising cost of living in Dhaka, as inflation here has remained stubbornly high. 

In 2024, the average annual inflation rate in Bangladesh was 10.34%, with the Consumer Price Index (CPI) remaining in double digits for much of the year. As of May 2025, inflation was still elevated at around 9–10% year-on-year.

As a result, even a healthy raise — like Arman's 25% — often just keeps pace with rising prices for rent, transport, and essentials. 

Lifestyle inflation, however, begins when people stretch beyond necessary expenses — indulging in wants before securing needs.

How to stop the slide

The first step is recognising the pattern. If your savings haven't increased — or worse, if you're still short of cash by the end of the month — after a raise, that's a red flag.

The next step is to be intentional about how you use your additional income.

1. Lock in savings before spending: Don't wait until the end of the month to see what's left to save. Automate a fixed portion — even 20% — into a separate savings account or a Fixed Deposit Receipt (FDR).

2. Consider low-risk investments: Options like Sanchayapatra or government bonds are ideal for long-term saving. If your employer offers a provident fund scheme, opt in — even if it reduces your take-home pay slightly. It's worth it.

3. Stick to your old budget: For at least three months after a raise, try living on your old salary. Use the surplus to repay debts, build an emergency fund, or invest in your future.

4. Delay major purchases: Use a 30-day pause rule before buying big-ticket items — like phones, watches, or furniture. It helps distinguish impulse from true need.

5. Audit your expenses: Track your monthly spending. You might find drains like unused subscriptions, excessive delivery fees, or regular splurges that don't bring lasting value.

6. Budget for joy: Set aside a small portion, like 5–10% for guilt-free fun. Budgeting doesn't mean denying yourself joy. It means choosing joy with intention, not impulse.

Spending with purpose

Beyond merely cutting costs, it's essential to spend your raise meaningfully by investing in personal growth and future opportunities. 

Enrol in a third language course you've always wanted to take — Spanish, French, Japanese, or anything that excites you. Preparing for exams like the IELTS or GRE, or pursuing professional certifications, can also open doors to global or career-advancing opportunities. 

Join a music, photography, or art class you've postponed for years — activities that nurture creativity and personal growth. You could even take a meaningful trip to a place you've always dreamed of, immersing yourself in new cultures and perspectives. Start a side hustle or freelance training that could build an alternative source of income. 

These choices are not indulgences—they're smart, long-term investments in yourself, often yielding greater value than the temporary thrill of another gadget or brunch.