What Is Lifestyle Creep? How To Recognize and Avoid It

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Have you ever noticed that the more money you earn, the more you spend? While some savvy savers can maintain their current lifestyle even as their income rises, many people fall victim to “lifestyle creep,” where discretionary spending increases as income rises.

Also known as “lifestyle inflation,” common signs of lifestyle creep include upgrading cars, dining out more often and splurging on luxuries without increasing your savings and investments.

How To Spot Lifestyle Creep in Your Budget: A Checklist

You can start to recognize lifestyle creep if:

• Your salary has increased, but you aren’t saving any more than before.
• Dining out or delivery, subscriptions and entertainment take up large chunk of your budget.
• You’re enjoying life but still carrying debt.
• You wonder where your money went at the end of each month.
• You aren’t enjoying your little luxuries or splurges.
• You have unworn clothes in your closet or unopened games you don’t have time to play.
• You invest in hobbies but never have time to enjoy them.

How Lifestyle Creep Happens

Lifestyle creep can occur in different ways and your expenses can vary based on what’s important to you. Here’s how it can show up:

• Your income grows and your spending begins to match it.
• You normalize splurges like a daily latte or designer fashion.
• You upgrade your home décor or take more vacations.
• You attend more concerts or local attractions.

Lifestyle Creep Examples in Everyday Life

What Causes It?

• Treating yourself after a promotion or a raise
• Feeling pressure to match your friend group’s spending habits
• Being influenced by social media — fear of missing out (FOMO) or impulse buys on TikTok

Why Earning More Doesn’t Always Mean Saving More

With lifestyle creep, spending can outpace your income growth, which can then lead to taking on more debt. Your savings won’t have a chance to grow if your lifestyle becomes more expensive to keep up.

Why Lifestyle Creep Can Hurt Your Finances

You work hard for your money and deserve to enjoy it. But lifestyle creep has long-term consequences.

• If you’re constantly living paycheck-to-paycheck despite a higher income, it’s harder to pay off debt or build an emergency savings account.
• When you’re spending as much as you earn — or close to it — it’s harder to prioritize your retirement savings. Over time, this could delay your ability to retire comfortably and prevent you from achieving financial freedom.
• You’re also held back from building long-term wealth, making it harder to reach other goals in the future or leave something behind for the next generation.

How To Identify if You’re Experiencing Lifestyle Creep

If you think you might be experiencing lifestyle creep, you probably are. Pay attention to these signs:

Your Spending Increases

One sure sign is that each time your income goes up, your spending also increases. If you aren’t seeing your savings grow in spite of your larger paychecks, that’s another sign.

You’re Constantly Checking Your Bank Account Balance

If you still feel financially stressed, checking your bank account balance during every grocery store trip, for example, you could be a victim of lifestyle creep.

Your Monthly Expenses Keep Going Up

If your monthly expenses continue to taking a large part of your income, even if you account for inflation, you could be experiencing lifestyle creep.

Your Savings Stays the Same or Decreases

If your income has increased, but your spending grows even faster — and your savings doesn’t — that’s another sign something’s amiss.

7 Ways to Avoid Lifestyle Creep

Fortunately, lifestyle creep doesn’t have to hijack your financial goals. Here are some tips to avoid it.

1. Increase Savings First When You Get a Raise

If you’re already making ends meet, increase your savings automatically when you get a raise. You can start with the following:

• Boost contributions to your 401(k), especially if your employer matches funds.
• Building up your emergency savings.
• Increase the money you put into IRA or other investment accounts.

2. Create a Wants vs. Needs Budget

Keep a close watch on your budget after you get a raise by creating a want vs. needs list.

• Separate what you “want” to spend on versus what you “need” on the list.
• Don’t change the amount that you’re spending on essentials.
• Look into your discretionary spending. Are there places you can cut costs so you can spend more in areas that really matter?

3. Live Below Your Means

There’s temptation to splurge when you earn more. Here’s what you can do to “live below your your means.”

• Avoid upgrading everything just because you can.
• If you need inspiration to maintain a frugal lifestyle, think of Warren Buffett’s modest Omaha home that he’s owned for 60 years or the used cars he drives.

4. Delay Big Purchases

Tempted to splurge on something you can afford but don’t need? Try this out:

• Wait 30 days to avoid emotional spending.
• Create a wish list and wait for a special occasion to avoid emotional spending.
• Don’t save your credit card information within shopping apps like Amazon. If you take a moment to pause, the act of re-entering those numbers each time can help you decide if you really want the item.

5. Set Long-Term Financial Goals

Focusing on a secure financial future can help you avoid temptation. Here are some tips:

• Focus on a goal, such as buying a home, retiring early, building a travel fund.
• Having goals can keep you motivated to avoid lifestyle creep.
• Set up a high-yield savings account that allows you to put money for a specific purpose inside different “buckets” so you can track your progress.   

6. Review Your Subscriptions Regularly

Recent studies revealed that Americans on average spend about $1,000 per year on subscriptions. It can hurt your wallet too if your subscriptions are automatically deducting. Here’s what you can do:

• Find all of the services you pay for monthly.
• Eliminate any you don’t use or that are redundant.
• You can use a service like Rocket Money or do it yourself by reviewing your bank and credit card statements.
• Ask for a refund if you forget to cancel a free trial. Oftentimes, companies will say yes.

7. Track Your Net Worth

Being wealthy means more than having a big paycheck, a luxury sports car in your driveway or designer clothes. The true sign of wealth is your net worth. Here’s how to keep track of it:

• Evaluate your assets, including real estate, investments, savings and your bank account balances.
• Compare the value of your assets against how much debt you have.
• Watch your net worth grow as you pay down debt and build savings and investments. These are the real signs of financial progress.

Can Lifestyle Creep Ever Be a Good Thing?

Even the name, “creep,” sounds negative. But lifestyle creep doesn’t have to be all bad.

If your spending increases are intentional aligned with your values, and they effectively enhance your life, it’s not bad to spend a bit more when your salary goes up. If you’re investing in preventative healthcare you couldn’t afford previously, healthier foods or a gym membership, your added spending will reap rewards.

Likewise, you might opt to invest in education or certifications that might further increase your salary or time-saving tools that can help you enjoy your life more. As long as you continue to meet your savings goals — including retirement — increasing your spending doesn’t have to hurt.

Spending

Spending becomes a problem if you aren’t enjoying or benefiting from the added expenses.

Final Thoughts

It’s easy to fall into lifestyle creep. It can sneak up on you if you aren’t diligent about tracking spending and maintaining your budget. Have a clear plan for your money as soon as you receive a raise or increase your income. Once your needs are taken care of, evaluate the “wants” and decide how important they are to your life. Make sure you’re continuing to save or pay down debt as your income rises.

Avoiding lifestyle creep is one step toward long-term financial security, freedom and peace of mind as retirement approaches.

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