How to Avoid Lifestyle Creep

As your income increases, it’s tempting to upgrade your lifestyle right along with it. Nice dinners out, a new car, or a bigger house. While these might feel like well-earned rewards, they can quietly chip away at your ability to save money and build long-term wealth.

Lifestyle creep is a common threat to financial progress because, as the name suggests, it can often go unnoticed. In this article, we explain how to spot lifestyle creep and stop it in its tracks, so that you can save more for your future while smartly rewarding yourself.

What Is Lifestyle Creep and How Does It Happen?

Lifestyle creep, or inflation, happens when your spending increases alongside your income. When you earn more, it feels easier to justify seemingly minor upgrades, such as taking expensive vacations, buying a new car, or switching to more premium items. Over time, however, these shifts become your new status quo and increase your total expenses.

While rewarding yourself feels normal, it can also hurt your finances. Overspending, even though you’re making more money, can impact your ability to save, invest, and build toward long-term goals.

What makes lifestyle creep particularly dangerous is the subtlety in which it occurs. A few seemingly harmless upgrades can suddenly become a serious overspending habit. Understanding how to spot and prevent it is essential to leverage your high earnings for more savings.

Spotting Lifestyle Creep

Recognizing lifestyle creep as it happens can be difficult. However, examining your savings rate can be an effective way to assess whether you’re overspending. According to Matthew Gaffey, CFP^®, ChFC^®, BFA^™, CF2, president of Corbett Road Wealth Management, a simple exercise is to compare your savings rate now versus when you earned a lower income.

“If you have a significantly higher income than you used to, but find yourself saving the same amount of money each month as you did at a lower-paying job, your savings rate has declined,” Gaffey explains. This is a red flag that lifestyle creep may be eroding your ability to save and invest.

However, there are exceptions to this rule to consider. Gaffey points out that, for example, “you may find that you’re contributing more to your 401k than you used to.” While this isn’t necessarily reflected in your bank balance every month, “you’ve certainly invested in your future” rather than simply spent it on goods or services.

On the other hand, if your savings haven’t changed but your monthly expenses have increased, perhaps due to a new child or other major life change, “it’s arguable whether or not your lifestyle has really ‘crept up.’” In this case, you may be spending additional money, but it’s more about an increase in responsibility than overindulgence.

By regularly evaluating your savings rate and distinguishing between necessary and unnecessary expenses, lifestyle creep will be easier to spot. To help you further pinpoint whether you’re living beyond your means, ask yourself these five questions:

1. Am I saving less now, despite earning more?
2. Does it seem like I’m living paycheck to paycheck, despite an income increase?
3. Is it stressful to check my transactions or bank balance?
4. Is my discretionary spending within my budget, if any?
5. Do I feel the urge to upgrade or treat myself every time I get a raise or bonus?

Preventing Lifestyle Creep

Whether you’ve realized you’re experiencing lifestyle creep or want to prevent it beforehand, there are practical ways to stay ahead. These strategies require mental discipline and self-awareness, but they can go a long way toward keeping your financial goals on track.

1. Track Your Spending with a Budget

Knowing where your money goes is key to avoiding lifestyle creep. Keeping a detailed budget and aligning your spending with your goals helps you stay intentional. Even with a high income, budgeting allows you to make conscious spending decisions and prioritize saving.

Your budget should reflect your income, goals, and personal habits. General frameworks like the 50/30/20 rule (50% to needs, 30% to wants, 20% to savings) can be helpful but consider speaking with a financial advisor to tailor a plan that works best for you.

2. Prioritize Saving

One clear sign of lifestyle creep is saving less, even as your income rises. Making saving and investing a top priority can help you avoid this. Meaningful goals like building an emergency fund, maxing out retirement accounts, or saving for a down payment on a home give your extra income a clear purpose.

One way to be sure you’re consistently saving is by automating it each month. For example, you can set up a recurring contribution to a Roth IRA or taxable brokerage.

3. Practice Delayed Gratification

When you receive a raise, bonus, or windfall, it’s easy to want to upgrade your life or reward yourself as soon as possible. Instead, take some time to think about what you truly want or need. This can help you avoid buying purely on impulse, but rather with intention and logic.

4. Don’t Compare Yourself to Others

The saying, “comparison is the thief of joy,” often applies to personal finance. Seeing friends or peers buy new cars, take luxury vacations, or move into bigger homes can tempt you to do the same. By avoiding this, you’re able to spend money on what truly makes you happy and stick to your financial plan.

“The lifestyle creep is an unfortunate symptom of social media, and the endless American pursuit of ‘keeping up with The Joneses,’” says Anthony DeLuca, CFP^®, CDFA^®, senior financial advisor at Delta Advisory Group. By comparing yourself to others, you may feel envious or the urge to match or be better than them.

The solution, DeLuca adds, is “humility and gratitude.” He encourages people to find happiness from within: “Is it love? Or faith? Or a gratefulness to be alive?” Genuine sources of happiness, rather than from material possessions, can prevent you from making impulsive and emotional financial decisions. “Wherever your purpose and source derives from, lean into this,” he advises.

How a Financial Advisor Can Help

Lifestyle creep is often subtle and occurs over time, which makes it hard to spot. Having a financial advisor on your side can offer outside perspective and knowledge to help you prevent spending patterns that are holding you back. With a clear understanding of your goals and income, they can tailor a holistic financial plan that works for you.

A professional will look at your monthly income and expenses and assist you with constructing a custom budget and cash flow plan. This ensures you have room to make discretionary purchases, while also saving and spending on needs, like housing or food. Your advisor can also help you stay accountable by checking in and offering a voice of reason.

When you look for a financial advisor, we recommend fiduciaries who must prioritize your best interest above all. These professionals often hold prestigious titles, like Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC), which bind them to high ethical standards. This free matching tool can help you connect with a vetted fiduciary advisor who suits your needs.

Frequently Asked Questions

Does the 5/30/20 rule help me avoid lifestyle creep?

The 50/30/20 rule is a popular budgeting guideline that can help prevent lifestyle creep. It suggests allocating 50% of your income to needs (like housing and groceries), 30% to wants, and 20% to savings and investments.

While it’s a solid starting point, it may not be ideal for everyone. Your goals, income level, and financial priorities might require you to save more or spend less on discretionary items. A financial advisor can help you build a personalized plan that better fits your circumstances.

Can I still reward myself and avoid overspending?

Rewarding yourself is normal and reasonable. However, it can quickly become a justification to make several purchases that go beyond your budget. Instead of buying on impulse or without much thought, consider delaying purchases and thinking carefully about the value they add to your life.

How do I know if I’m spending too much on wants?

If your discretionary purchases are cutting into your savings or causing debt, that’s a red flag. Another sign is if your savings rate is shrinking despite your growing income. These shifts may signal that lifestyle creep is settling in.

Is lifestyle creep only a problem for high earners?

Lifestyle creep can occur for anyone whose spending rises faster than their savings. It’s especially common after raises or promotions and can be extremely subtle. By keeping a budget and being aware of your discretionary spending, you can keep these patterns in check.