Understanding lifestyle creep – and how to avoid it

You get a new job, a promotion, or a raise. You’re earning more and have a little extra for nicer clothes, more nights out with friends, more takeout deliveries. Now you can add a couple more streaming services, upgrade the hotel room on your vacation, get that monthly wine subscription.

Fast-forward a few months and that extra income hasn’t translated to extra savings – sure, you’ve got more things, but financially you’re not in a better place.

If this sounds familiar, you may have fallen victim to “lifestyle creep”. Also known as lifestyle inflation, lifestyle creep is when your spending keeps pace with your income. So, rather than additional income building wealth, that extra money is being spent as you earn it.

Read on to learn more about lifestyle creep, how to recognize it, and develop some tricks to avoid it.

What is lifestyle creep?

More spur-of-the-moment purchases. Buying lunch everyday when you used to pack it. Taking rideshares more often than transit. Ordering takeout more frequently, while groceries go unused in the fridge. Are you guilty of any of these?

In some ways, it’s natural human nature: earn more, spend more. There are always nicer clothes to buy, fancier restaurants to try, a newer car to drive. You’ve earned that extra money, so why the heck not, right? Well, because spending more invariably means saving less.

Spending more money when you earn more money isn’t necessarily the problem. That’s going to happen. The problem is when too much of that spending is on frivolous extras or is spending that doesn’t have a clear purpose. Making more money should not mean making worse money decisions.

You can think of lifestyle creep as the “treat yourself” mindset. It’s fine to treat yourself sometimes. Treating yourself with items or services you formerly considered luxuries can be nice – but when those treats become the norm instead of luxuries, it’s time to take stock of your spending. Lots of little treats quickly add up to a pretty big financial statement at month’s end, and money that could have gone into your savings or towards retirement has basically vanished. Living a great lifestyle is great, so long as your financial health isn’t suffering because of it.

How do I avoid lifestyle creep?

Wanting nice things is normal. Spending more because you have more is normal. But you don’t want your spending to get away from you. Lifestyle creep prevents you from saving for your future. So how can we avoid that?

Budget

While this might seem like a tired piece of advice, budgeting remains your best friend when it comes to your finances. A budget is the foundation of good money habits. To avoid lifestyle creep, you need to understand your spending and budget your money to best serve your goals.

Budget your money into paycheque splits that make sense for you – allocating percentages of your monthly income for savings, necessary spending, and treat spending. Necessary spending is things like rent, transit, internet. Treat spending is for meals, toys, clothes, etcetera. And then there’s your savings – never forget your savings.

Set yourself goals to accomplish your financial aspirations, like buying a house, paying off your honeymoon debt, or retiring early. As your income increases, redirect more into your savings to help you achieve your big goals. Every boost to your income should mean a boost to your lifestyle as well as a boost to your bank balance.

Automate savings

creating a budget and sticking to a budget are two different things. If you struggle to stick to a budget after creating it, you’re not alone. Luckily, your phone or your computer can help you. Setting up automatic payments to your savings accounts can ensure your money is going to the right places – before you have a chance to blow it on another round of drinks.

You can set up pre-authorized debits (PADs) to come out of your chequing account and into your savings account on payday, or you can do it manually (just remember to set up recurring calendar notifications). When you’ve got your technology working on your side, there’s really no excuse for not saving – it’s easy to set up, it happens without you really noticing, and suddenly you’re starting to build wealth.

Get over FOMO

FOMO means Fear Of Missing Out. But sometimes it’s ok to miss out. Just because others are spending big doesn’t you mean you have to. Do what’s best for your life and your finances – don’t worry about what others are doing or how they’re spending their money. You’re the boss.

Make the right decisions for you, even if that means skipping some (often expensive) social events. Set yourself up for success by managing your goals and choose your moments to splash out. Be strategic about spending on flashy dinners and trips away. Don’t stress about missing the odd event if it means your savings are growing to support your long-term dreams – your true friends should appreciate and respect that you have goals and want to be financially healthy.

Pause

When you’re about to make a sudden purchase, press pause. Take a breath, wait some time. Often, with the benefit of time, you’ll decide you don’t actually need those shiny new golf clubs or hair straighteners, that celebrity line of exercise clothes, or that frypan you just saw on TV. Take a day or two, or a week, or a month. If you’re in a store, leave the store. If you’re online, close the tab. Do whatever you need to do to put some room between yourself and the impulse to buy. If, after a break and some time to reconsider, you still truly need that thing, then buy it. But you’ll likely find you’re pretty good at letting things go – with hindsight, we often realize that thing we wanted wasn’t so crucial after all.

How do I reverse lifestyle creep?

Maybe lifestyle creep is already happening for you. Maybe you’re reading this and realizing you need to make some changes. You want to save more and get your spending habits under control. You’ve come to the right article. It’s never too late to reverse lifestyle creep. Here are some ways to help get your lifestyle in check with your income.

Take note

Write down what you’re spending money on. Take inventory of all the purchases you’ve made since coming into extra money. This helps you recognize where lifestyle creep is affecting you and why.

Audit your monthly spending. Analyze your bank statements. With smaller purchases like coffees, snacks, and Uber rides, you might not think much about them. But add them up and you might be surprised how much you’re spending per month or year. Maybe there’s room to cut down on certain things.

Recurring expenses. What comes out of your account every month that you might be able to do without? How many streaming services are you paying for? Are you paying for a gym membership you hardly use? A meal delivery subscription you don’t always cook? Examine where your paycheque goes. These things add up.

Spending journal. Create a threshold for yourself, at $50 or $100, for example. Anytime you want to buy something that crosses that threshold, write down what it is and give an honest appraisal of why you want it. Wait a day or two – or a week – and then revisit what you wrote. Do you still want it for the same reason? Then, if you do buy it, come back to the journal after a couple months and record how much enjoyment it brought you. Do you love it or regret the purchase? Would you buy it again? Use your reviews as the basis for future decisions.

Use technology

Use technology to enforce the changes you’re trying to make. It’s harder to spend money if you don’t have easy access to it. Restrict how much money you have on hand – with an enforced budget, you’ll think more about each purchase and if you really need it or not.

With KOHO’s prepaid Mastercard, for example, you can only spend what you put in your account. Estimate what you want to allocate as your treat money and transfer that to your card. This can be a great way to enforce your own budget. Use the available money for your monthly treat spending, and when that money’s gone, it’s gone. Until next month.

Mental and emotional health

There are times that an impulse buy or an expensive night out can be a way to make you feel better when you’re feeling down. Anxiety, stress, insecurity, and other negative emotions can lead us to spend more for a quick fix. But the high from a new purchase is just a temporary bandage. Look after yourself and examine why you’re spending. Retail therapy is not real therapy. Identify the issues that might be causing you to feel a certain way and work to solve the problem at its root – your brain and your wallet will thank you.

Final thoughts on understanding and avoiding lifestyle creep

Earning more money is a good thing. Honestly, congrats! That means you’re likely working hard and being recognized for a job well done. More income can help you reach your financial goals and increase your quality of life. But, as always, you need to be mindful and sensible with your money. More money can mean more nice things – but not at the expense of more savings. As your income increases, you need to keep putting savings aside. That’s how you meet your goals.