The Seductive Trap of the Lifestyle Creep

Congrats—you got a nice salary bump and a better-paying job. Now, you have the extra funds to revamp your home or invest in a new wardrobe. Add another subscription service. Treat yourself to some fine dining events. You deserve these nice little luxuries and plus, money is meant to be spent, right?

Unfortunately, this line of thinking can make you fall for the dreaded "lifestyle creep" trap, aka where you spend frivolously—and without intention—to upgrade your lifestyle.

Everyone deserves the fine things in life and if you can afford it, go ahead! But it's easy to get carried away binge shopping on Amazon and Target and risking your financial health. That said, there are ways to avoid this sneaky trap—and we lay them all for you below.

Signs and Effects of Lifestyle Creep 

For many, a pay bump is a huge financial relief. But it can also lead to the slippery slope of overspending also known as lifestyle inflation.

“Lifestyle creep happens when people start spending more as their income rises,” explains financial expert Heidi MacVittie, MSF, the founder of Moola Masters. “Instead of saving or investing the extra income, people ‘upgrade’ their lifestyle by buying non-essential items and luxuries.” 

She adds that this can lead to stations where people, despite making more money, have little to no savings, living paycheck to paycheck, and feel the burden of financial stress.  

Andrea Woroch, a consumer finance and budgeting expert, says lifestyle creep could look like swapping out your otherwise trusty car for a shiny new one, buying a bigger house (with bigger bills), upgrading your gadgets to the latest devices, or purchasing new clothing when your wardrobe is perfectly fine. 

“Lifestyle creep is a hidden financial trap that will keep you from reaching many financial goals regardless of your income," Woroch warns. “After all, it's not how much you make but how you spend that will impact your financial situation.” 

Signs of Lifestyle Creep

• Living paycheck to paycheck despite raises
• Feeling like you don’t know where your money goes every month
• Dwindling emergency savings 
• Falling short on your retirement contributions
• Relying on credit cards to get through the week or month
• Financing unnecessary expenses, like lavish vacations, new clothing, or nice dinners  
• Rising debt with no repayment plan
• Borrowing money from others
• Skipping bills to cover discretionary spending 
• Uptick in overdraft fees and penalties
• Inability to cover emergency expenses 
• Prioritizing wants over needs consistently
• Feeling pressure to keep up with others
• Making impulse vs. intentional purchases
• Justifying expensive purchases as “deserved”
• Consistently opting for luxury over practicality

Causes of Lifestyle Creep

There are many reasons why people fall into the lifestyle creep trap from this need to keep up with the Joneses to a lack of impulse control. Here are the most common causes.

Pressure to Keep Up

We often want what others have, or we want better than what they have. 

“One of the biggest areas to blame is the constant comparison and pressure people feel to live like others they see online and through social media,” notes Michelle Winterfield, a couples finance expert and founder of the Tandem app. “A big part of partaking in any experience now is thinking about the Instagram post that will follow.”

A 2021 study even found a direct relationship between our social media use and depression and discovered that viewing others' highlight reels can often make us feel bad about ourselves and our own accomplishments.

But this pressure isn't limited to social media. Before the digital boom, people compared themselves to neighbors, friends, and family. Social media only exacerbated this problem and many now compare themselves to millions of strangers on the Internet instead of their inner circle. Hence, why people feel compelled to “over-purchase on things and experiences they may not have if these platforms weren't so widely used,” says Winterfield.

Undisciplined Budgeting 

The more you make, the less likely you feel a budget or examination of your finances is needed. After all, that $5 expense seems negligible, compared to when cash was tighter.

“Consumers often pay close to how much they spend when they are on a limited income, but loosen their purse strings when they get a bigger paycheck and have more money in the bank,” Worch says. “This leads to giving in to more impulse purchases or splurging more often than they may have before.” Cue overspending.

Poor Financial Literacy 

Another reason why lifestyle creep occurs is because of poor—or the lack of—financial education.

“Those who don't understand basic financial principles and how to budget, save, or invest can also end up blowing their hard-earned dollars on wasteful purchases in many situations,” Woroch says. The more you understand about finances, the more likely you are to make savvy decisions to benefit your future self.

A 2022 study found that those with increased financial literacy make wiser decisions that help secure their future financial needs.

8 Ways to Avoid and Manage Lifestyle Creep

So what’s the secret to avoiding lifestyle creep? Follow these 8 rules and you'll be well on your way to having more control over your financial decisions.

1. Set Clear Financial Goals: Establish short-term and long-term financial goals. MacVittie says this helps direct extra income towards meaningful objectives like retirement savings, buying a home, or funding a child's education. 
2. Increase Savings with Each Raise: When you receive a salary increase, allocate a portion of it to your savings or investment accounts before adjusting your lifestyle. This way, you build wealth and financial security without falling into the trap of spending more just because you earn more.
3. Automate Your Savings: Prioritize saving and automate how much goes into your savings and retirement accounts each month. “By paying yourself first, you ensure that a portion of your income is saved before you have a chance to spend it,” MacVittie says. Plus, the easier it is to save, the more likely you are to do it.
4. Create a Budget: Establish a simple budget that reflects your income, expenses, savings goals, and discretionary spending. Adhering to this budget helps you live within your means, preventing overspending and the gradual increase in lifestyle costs. 
5. Identify Spending Triggers: This varies for everyone, but if you can identify your weak points when it comes to spending, you’ve already won half the battle. Maybe it’s FOMO when others invite you to a luxe dinner (solution: figure out ways to politely decline or attend less frequently), or maybe it’s scrolling through social media (solution: reduce scroll time, hide ads, or unfollow/hide certain people). 
6. Use Your Bonuses Wisely: “Any time you get a promotion or new job that pays more, put the difference in salary directly towards your retirement fund, college fund, or separate savings so it’s out of sight and out of mind,” Woroch advises. 
7. Ask Yourself if It’s Necessary: Winterfield says you must truly understand the "why" behind your purchases to tackle unnecessary spending. “It's perfectly normal to spend money on things that [are essential or] make you happy, but you need to be aware of the opportunity cost of this discretionary purchase and why you're really doing it to validate if it's worth it.”
8. Revisit Finances Quarterly: Regularly assess your short-term and long-term financial goals. Tracking your progress keeps you motivated and focused on achieving them. Adjust your spending and saving habits as needed to stay on track, ensuring that lifestyle creep doesn't derail your financial plans.

Avoiding lifestyle creep is an ongoing battle that requires some self-awareness and discipline. By regularly reviewing and adjusting your financial plan, MacVittie says you can help make sure your spending aligns with your values and long-term goals.