Understanding Lifestyle Creep

October 25, 2022

If you get a raise, you might think you’ll have more money in your bank account — but that isn’t always true.

Treating yourself can become a habit instead of a luxury, which can leave you with less money on hand. Keeping up with the Joneses isn’t always possible and can often lead to a debt cycle that is difficult to climb out of.

What is Lifestyle Creep?

Lifestyle creep happens when higher income leads to increased discretionary spending. This can take the form of an escalating taste for the finer things or a growing list of regular expenses.

Typically, lifestyle inflation starts because people start earning more or they’ve freed up money by paying off debt. Once it takes over, the extra cash gets spent as fast as — or faster than — it comes in.

Signs of Lifestyle Creep

Lifestyle inflation can happen to anyone, from someone making six figures and splurging on designer clothes to everyday earners who are replacing meal prep with daily $15 lunches. Anyone can be convinced to spend money outside of their means.

Below are common signs of lifestyle creep that can damage your personal finances.

Your Savings are Stagnant

If the amount you’re saving has remained the same even after a raise or bonus at work, that is a sign that you’re spending all of the extra money you’ve made. Consider if there are saving goals you’re neglecting, like saving for a down payment, retirement, or just having a solid emergency fund.

Your Spending Has Increased in Most Areas

If you notice that you’re spending more money in general because you feel like you can afford it, lifestyle creep may be a factor. You may eat out more, buy pricier gifts, take more vacations, or sign up for new memberships.

Many people experiencing lifestyle creep have replaced various aspects of their life with more luxurious options: a luxury gym instead of a budget membership or ordering food delivery instead of making your own meals, for example.

You Aren’t Budgeting

It’s easy for lifestyle creep to take over when you don’t know where your money is going. Spending on things like streaming subscriptions, expensive haircuts or beauty treatments, or a $13 latte is done without a second thought if you don’t have a budget to consider.

People experiencing lifestyle creep often don’t know how much money is in their checking account or how much they’re spending on recurring expenses. At the end of the month, they don’t know where their money went.

You’re Living “The Dream”

Things you used to think of as aspirational or luxurious have become mundane or even essential. This can look like taking a car to work every day instead of using public transportation, not planning before splurging on luxury items, or going out to nicer restaurants every weekend instead of just for special occasions.

You Don’t Feel in Control of Your Finances

If you’re stressed when you check your bank account balance despite being a high earner, or you’re watching your savings account decline and credit card debt increase, lifestyle creep is likely the culprit. Watching extra income disappear can add an immense amount of stress.

Why is Lifestyle Creep Destructive?

It’s normal for your lifestyle spending to increase when you get a higher income. Especially if you’ve been living on a strict budget, wanting to treat yourself for working hard makes sense and can even be done without causing lifestyle creep. It only becomes problematic when the increase in spending outpaces the increase in income.

The problem with lifestyle inflation is that it can make it hard to achieve your more important financial goals, such as building an emergency fund, contributing to retirement accounts or putting money away for a down payment. Without realizing it, your newfound lifestyle can take priority over financial planning.

Spending more inevitably means saving and investing less. Even if you are earning enough of a discretionary income, you may end up living paycheck to paycheck or even rack up large amounts of debt if you’re overspending.

This problem is especially acute for younger savers, who have the most to gain from investing early. Thanks to compounding interest, even small investments have the potential to grow significantly over a long enough period.

If your spending consistently increases with your income, no extra money is left for investing.

How to Fight Lifestyle Creep

Improving your standard of living along with income increases can feel like progress. And improving your lifestyle isn’t necessarily bad, as long as you’re also mindful of your financial health and long-term goals.

To keep spending habits in check, consider these strategies:

Create a Monthly Budget and Stick To It

As your income rises, it’s important to recalibrate your budget. If you earn more money, you should save more money as well.

Once you create a budget, there should be a category for spending money, to give you the flexibility to spend fun money freely without hurting your long-term goals.

Set Long-Term Goals and Track Progress

What are your financial goals? Are you building out an emergency savings account? Saving for a new car? Contributing to a 401(k) or other retirement savings account? Long-term goals like these can help to make smarter short-term financial decisions by giving you another kind of success to focus on.

Some may benefit from working with a financial planner to create a debt repayment plan, investment plan, or budgeting.

Manage Revolving Debt

Accumulating debt is bad for your overall financial health, and it’s a sign that your lifestyle is getting away from you. When you live beyond your means and run up debt, it makes it that much harder to achieve long-term financial goals.

Maintaining too much revolving debt can also hurt your credit score, making it harder to secure the best terms on new debt such as a mortgage or car loan. And besides, it means you’re paying interest on your spending every month, which nobody wants to do.

The Bottom Line

Lifestyle inflation can happen to anyone, and can be difficult to unravel once you get used to a higher level of spending.

None of that is to say that you can’t treat yourself when you get an exciting raise or bonus. The issue is when treating yourself becomes an everyday expense.

Most people can avoid lifestyle creep by keeping a budget, saving more when their income increases, and spending mindfully.

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