We hate to say it, but spending money can feel good. Especially when you start spending money to improve your lifestyle.
This is why it can be so tempting to spend more once you start earning more. After all, why would you want to live life the same after working so hard to get a promotion? The urge to treat yourself is real.
This is called lifestyle creep. And while it’s understandable why it happens, it's important to keep it in check before you end up worse off than you were before.
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What Is Lifestyle Creep?
Lifestyle creep, also known as lifestyle inflation, happens when you suddenly have extra money come into your life.
Typically, lifestyle creep occurs after getting a raise, promotion, or a new job with a better salary. But it can also happen if you get a sudden windfall, like an inheritance.
Once you have more cash on hand, it’s really easy to start spending more to improve your lifestyle with luxury purchases. Maybe that's upgrading your home, buying a nicer car, shopping more, or dining out more frequently.
Lifestyle creep doesn’t refer to a one-time splurge to celebrate a significant milestone. Instead, lifestyle creep is when higher expenses become part of your regular spending. For example, signing a more expensive car lease or adding a weekly manicure to your budget would contribute to lifestyle creep.
Is Lifestyle Creep a Bad Thing?
Lifestyle creep isn’t necessarily a bad thing if you still leave room in your budget for goals like saving for retirement or buying a home. If you can afford to spend more and keep building a solid financial future, then you are in a good place.
When lifestyle creep becomes a problem is when it stops you from saving money, paying down debt, or growing an investment account.
When you have more discretionary income, it's important to strike a balance between improving your lifestyle and your long-term finances.
Examples of Lifestyle Creep
The reason lifestyle creep can be so damaging to your finances is that it can be challenging to recognize when it’s happening to you.
Here are some signs of lifestyle creep in the real world:
- Cars: Upgrading cars means higher payments, insurance, and maintenance costs.
- Housing: Renting a more expensive apartment or buying a bigger home means higher housing costs.
- Dining and entertainment: Eating out more, going to more concerts, and traveling more can all add up.
- Fun purchases: You may be tempted to spend money on new phones, clothes, and other exciting purchases.
- Memberships and subscriptions: New memberships or subscriptions can cost more than you think.
- Services: It may be tempting to outsource chores like cleaning and grocery shopping, but this comes at a cost.
- Lifestyle upgrades: Do you usually fly coach but now always book first-class? Are you going to dinner at fancier restaurants? Maybe you start splurging on regular massages, higher-quality furniture, or more clothes.
Slightly increased spending in specific areas isn't wrong. But make sure it aligns with your bigger priorities.
For example, earning a higher income may lead you to upgrade where you live. The transition from a studio to a one-bedroom is a natural progression for many.
Where lifestyle creep becomes problematic is when your spending expands in a variety of categories. Try to keep a close eye on where you spend more, to make sure it’s the best use of your funds.
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How To Avoid Lifestyle Creep
Being aware that lifestyle creep can happen to anyone is the first step to not letting it negatively affect your finances — so good for you!
Here's how to control it and safeguard your financial progress for the future.
1. Create a budget
Changes to your lifestyle after a salary increase are fine in moderation. But look at your budget closely to see where you can afford to increase your spending and where you should cut back.
When creating your budget, make room for financial goals like building an emergency fund, investing in retirement accounts, paying down debt, or saving money.
Try to increase how much you spend on those categories before you start spending more on unnecessary purchases.
If you need help, digital budgeting apps like YNAB or Quicken Simplifi can track your expenses and spending for you, which might help you be more accountable.
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2. Automate savings and debt payments
Once you decide how much you can afford to save or put towards credit card debt or other types of debt each month, automate it.
You can set up automatic transfers from your checking account to debt payments or to your savings account each month. This makes it easier not to spend that money on something else.
3. Learn to avoid impulse purchases
Impulse purchases happen to the best of us, and in the early days of having a new influx of cash, it's easy to succumb to lavish spending!
To prevent lifestyle creep, try to practice mindfulness when shopping and think carefully about every purchase. Do you truly need it at that moment?
A good practice is to walk away from unnecessary purchases initially — you can usually come back to them later.
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4. Track your progress
Once you have your new budget in place for a while, circle back to it regularly to see what’s working for you and what isn’t.
You can also check in on how much progress you made toward your financial goals, like saving for a new car or paying off student loan debt.
If you find areas of your budget that you can cut back on, readjust your spending so you're making the most of every dollar.
READ MORE: Take Control of Your Finances With These 5 Smart Money Tips
FAQs
What is lifestyle inflation?
Lifestyle inflation is another way of saying lifestyle creep — an increase in how much money you spend after getting a raise, finding a higher-paying job, inheriting money, or experiencing some kind of financial windfall.
What is the 50/30/20 rule?
The 50/30/20 rule is a common budgeting method that involves divvying up your after-tax income into three categories: 50% for necessities like housing or healthcare, 30% for discretionary spending like travel or clothing, and 20% for financial goals like paying down debt or saving money.
The goal is to distribute your spending in a healthy way without depriving yourself too much.
How do you stop lifestyle creep?
One of the best ways to stop lifestyle creep is by being conscious of your spending. Create a budget and stick to it. You can make room in your budget for fun spending, but you can also make meeting your financial goals a priority.
TL;DR: How To Beat Lifestyle Creep
Getting more money doesn't mean you should automatically spend more money.
Create a budget that prioritizes your financial goals (emergency fund, retirement, debt payments) before you splurge on the fancy stuff. Then automate your savings and debt payments so you can't accidentally spend that money elsewhere.
The key is being intentional — it's totally fine to upgrade your lifestyle when you earn more, just make sure you're not upgrading everything at once.
Track where your money goes, avoid impulse purchases by sleeping on big decisions, and regularly check if your spending still aligns with your bigger financial goals.
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