If you’re anything like me, then your first job out of high school or college wasn’t exactly lucrative. Like many people, I entered the workforce earning well below the average salary.
The good news is that over time, most of us see our salaries gradually increase, which can open up a whole new world of opportunities.
Unfortunately, it often feels like those pay increases disappear as quickly as they appeared. We struggle to save money and wonder where all that extra money went.
The answer? Lifestyle creep.
And while lifestyle creep can seriously cut into your salary increase, there’s good news. There are several ways to avoid it, and even reverse it if it’s already a problem for you.
What is lifestyle creep?
Lifestyle creep — also known as lifestyle inflation — is the gradual increase in your discretionary spending as your income increases.
Some lifestyle inflation is intentional. As we earn more, we choose to increase our standard of living as well. But plenty of lifestyle creep also happens without us even realizing it. We simply have additional money in our bank account, and so we spend it.
While it’s natural to elevate your lifestyle as your income increases, it can also seriously derail your financial goals. When you increase your lifestyle in an amount equal to your pay increase, you aren’t allocating additional money to your emergency fund, retirement accounts, and other financial goals.
Lifestyle creep may seem relatively harmless, but it can actually land us in a very precarious situation. Recent data shows that about 54% of Americans are living paycheck-to-paycheck, including 40% of those with income over $100,000! Unfortunately, that means there’s little left in the budget to cover financial emergencies or reach financial goals.
Lifestyle creep examples
Lifestyle creep can come in many different forms. In some cases, lifestyle inflation happens as the result of many small increased expenses that add up. For example, you might sign up for a new streaming service here and there, splurge for nicer clothes, or switch to organic groceries.
It’s these small increases in spending across many categories that allow lifestyle creep to go unnoticed until you take a hard look at your budget.
In other cases, lifestyle inflation is much easier to spot because it comes in the form of large purchases. You might elevate your lifestyle by upgrading your house or apartment, buying a new car, or taking extravagant vacations.
How to avoid lifestyle inflation
Lifestyle inflation often happens without us even realizing it, but there are several ways to help avoid it. Keep reading to learn five ways to avoid lifestyle creep.
Create a budget
You’ve almost certainly heard that the best way to control your spending is to have a budget, but it’s worth repeating.
When you have a budget, you’re telling your money where to go rather than simply spending the money that’s in your account.
One of the best budgets to address lifestyle creep is the 50/30/20 budget. Using this budget method, 50% of your income goes toward needs, 30% goes toward wants, and 20% goes toward savings and debt.
This budgeting method makes it easy to address pay increases because you use the same percentage to split up your budget no matter how much you’re making. When your income goes up, you can simply divide it up using this same framework.
Need help starting your budget? Visit our complete guide to creating a budget (and actually sticking to it).
Set financial goals
Goal-setting requires making a clear plan for your money. For example, if I want to fund the down payment on a home in two years and it’s going to cost me $24,000, then I know I need to save roughly $1,000 per month for that goal.
If I’m excited to become a homeowner and that goal is really important to me, I won’t be tempted to spend that $1,000 on unnecessary spending. Nope, I’ve already got a plan for that money.
One thing I know about myself is that I’m far more motivated to save when I have a specific goal in mind versus when I’m saving just for the sake of saving.
If you don’t currently have any financial goals you’re working toward, now is the time to start. Visit the free guide I created on setting and reaching your financial goals.
Create boundaries around debt
The situation when lifestyle creep is most dangerous is when we don’t actually earn a high enough income to cover it, which is, unfortunately, the case for many people,
According to Bankrate, roughly 54% of Americans carry a balance on their credit cards. And data from Experian shows the average credit card balance is about $5,525.
There are some situations where debt is hard to avoid. If a financial emergency comes up and you don’t have the cash to pay for it, it might be necessary to finance it with a credit card or loan. And for large purchases like cars, financing is the only option for some people.
But often, credit card debt is the result of lifestyle inflation that gets ahead of our income. I say this from experience! When I got divorced at 27, I could no longer afford my lifestyle and ended up racking up some credit card debt before I got serious about my finances.
If you want to avoid lifestyle creep, it’s time to set some serious boundaries with yourself as to when you are and aren’t okay getting into debt.
One of the reasons it’s so easy to increase our spending when our income goes up is that we simply have more money in our bank account. And when the money is there, it’s easy to spend.
A great way to avoid that problem is by automating your savings.
When I was ready to get serious with saving, I set an automatic transfer from my checking account to my savings account the day after I got paid each month. At first, it was only $50, but I gradually increased it over time.
And you know what? I didn’t miss that money in my bank account. It was out of sight, out of mind. And because it wasn’t there to spend, I didn’t feel tempted.
You can use this automatic savings technique when it comes to building your emergency fund, saving for a big financial goal, funding your investment accounts, and more.
Make a plan for wage increases
When you’ve gotten pay increases in the past, have you ever sat down and intentionally decided where that money would go? Most people don’t, but it’s actually the best way to avoid lifestyle creep.
Let’s say you’ve just found out you’re getting a $3,000 raise (after taxes). When you break it down monthly, the extra $250 doesn’t seem like much. But when you look at the big picture, $3,000 is a decent chunk of money to put toward your savings and other financial goals.
So rather than just increasing your spending by $250 when you get your pay increase, sit down ahead of time and decide exactly where that $250 will go. Maybe you’ll put it toward student loans, the down payment on a house, or your investments.
And remember, you can of course put some of that money toward lifestyle elevation (we’ll talk about that more later). It’s just important to be intentional.
Can you reverse lifestyle inflation?
Unfortunately, most of us have already fallen victim to lifestyle creep throughout our adult lives. So while it’s important to talk about ways to avoid inflating our lifestyles with each pay raise, it’s just as important that we talk about remedies for our existing lifestyle creep.
Can you actually reverse lifestyle inflation?
I’m not going to lie — it’s really hard to reverse lifestyle inflation. Once you’ve upgraded your living situation, your eating habits, or your wardrobe, it’s hard to go back to the more affordable version you once had. But that’s not to say it’s impossible to reverse lifestyle creep.
I think the key to eliminating some of the lifestyle inflation that’s already worked its way into your budget is to get really clear on your values. Because when you get really clear on your values, it’s easier to spend money in ways that align with them.
Here’s an example for you. I used to spend a lot of money on clothes. In college, I would hit the mall with a cousin or a friend and drop a couple of hundred dollars, sometimes on things I only wore a few times.
Even later in my twenties, I would fall victim to emotional spending, buying clothes when I was anxious, depressed, and more. The difference is because I earned more money than I did in college, I also bought nicer clothes.
But here’s the wild thing: I don’t actually care about clothes that much. I typically wear the same few items in my closet, meaning there’s rarely a purpose for me to buy new clothing.
On my own personal finance journey, I spent a lot of time identifying my values. I realized that nice clothes weren’t really something I valued, yet I was spending a lot of money on them. And because I had that clarity, I was able to reverse that lifestyle creep.
I’ll also readily admit that there are some forms of lifestyle creep that I have no desire to reverse. My husband and I really value good food, and we love trying out local restaurants. Our food spending has increased over the years, but I’m not particularly interested in cutting it.
But I feel comfortable with that decision because I’ve identified my values, and I know it’s a form of spending that aligns with our values.
When is lifestyle creep okay?
Inflating your lifestyle in proportion to each salary increase will make it difficult to ever make meaningful progress toward your financial goals.
But that doesn’t mean lifestyle creep is never okay. After all, no one expects you to maintain the same standard of living you had in your early twenties when you earned minimum wage and shared an apartment with three roommates.
And frankly, cutting out lifestyle creep altogether will make it awfully hard to motivate yourself to earn more. What’s the point if you can’t enjoy any of it?
The key to doing lifestyle inflation correctly is to be intentional about it. Decide what spending increases would add actual value to your life. This intentional lifestyle creep — we’ll call it lifestyle elevation — might look like upgrading to a nicer home, buying quality clothing that will last you longer, buying healthy groceries instead of whatever is cheapest, and more.
One rule of thumb some experts recommend is allocation 50% of wage increases to lifestyle elevation, while the other 50% goes toward your financial goals of paying off debt, investing for retirement, etc.
Another way to manage your lifestyle elevation is to use the 50/30/20 budget, as we discussed earlier. The benefit of the 50/30/20 budget is that you never have to think about the appropriate amount to spend — it’s all laid out in the budget structure.
Ultimately, what you choose to do with future raises depends on your financial goals. While many people — me included — want to enjoy some of the fruits of their labor with a little lifestyle elevation, those that are seeking FIRE — or financial independence, retire early — often put nearly all of their pay increases toward investments for their big goal. You have to find what works for you.
Lifestyle creep may seem harmless, but it can seriously derail your financial goals and even result in you living paycheck to paycheck.
The good news is that as long as you’re intentional about it, you can elevate your lifestyle while still making room in your budget for saving, investing, and taking care of your future self.