Congratulations! You just landed that promotion you’ve been working toward for years.
The salary bump is substantial – maybe 30% or even 50% more than you were making before. You’re thrilled, and rightfully so.
Fast forward six months, and despite earning significantly more, you’re scratching your head wondering where all that extra money went. Your bank account doesn’t look much different than it did before the raise.
If this scenario sounds familiar, you’ve likely encountered one of personal finance’s most insidious challenges: lifestyle creep.
Also known as lifestyle inflation, this phenomenon affects millions of people who experience income increases, from recent graduates landing their first real job to seasoned professionals climbing the corporate ladder.
Understanding lifestyle creep isn’t just about recognizing a budgeting mistake – it’s about protecting your financial future and ensuring that your hard-earned income increases actually translate into long-term wealth building.
Whether you’re 25 and just starting your career or 55 and hitting your peak earning years, learning to identify and combat lifestyle creep can be the difference between financial stress and financial freedom.
What is meant by lifestyle creep?
Lifestyle creep is sometimes referred to as “lifestyle inflation”. Indeed, seeing lifestyle creep as a type of inflation makes sense.
Lifestyle creep is a common pattern seen among people who suddenly bring in a significantly larger income. After receiving a promotion, a new job, or experiencing a sudden increase in your income for any reason, you are likely to spend more as you earn more.
If you aren’t careful, lifestyle creep will indeed sneak up on you. It normally happens over time as you become accustomed to a higher discretionary income. Signs of lifestyle creep include:
- Seeing things you used to see as luxuries becoming “necessities”
- Becoming accustomed to higher costs for basic necessities
- Living in a more expensive home
- Taking more vacations
- Spending more on entertainment and going out more often
Most importantly, there is one serious sign of lifestyle creep you cannot take lightly:
Despite earning far more in income, you aren’t saving or investing more and are left with the same amount of money at the end of the month.
So, while more income is always great, and a better lifestyle isn’t something to complain about, you need to pay attention to your spending habits.
Long-term, you likely still want to get a comfortable home and achieve a secure retirement. If you’re no closer to that goal despite recently making far more money, you are a prime example of lifestyle creep.
5 Successful Ways to Beat Lifestyle Inflation
How do you fight lifestyle creep?
Only vigilance can help you avoid lifestyle creep.
To avoid the phenomenon, the first thing to remember is to keep a budget. Whenever your income changes, re-evaluate your budget. In fact, your budget should be re-evaluated whenever there are significant changes to your finances, whether they be related to income, expenses, or economic trends.
When you get a promotion, of course a celebration is in order.
But once that celebration is over, it’s crucial to sit down and crunch the numbers. You’ll want to find out exactly what the increased income will mean for your lifestyle. Without this kind of intentional planning, it’s easy to simply spend more because you have more and end up without any additional savings:
- Housekeepers
- Buying a boat
- Eating out more frequently and expensively
- Etc.
Next, we have to consider the relationship between income, age, and lifestyle.
Americans tend to reach peak income around their mid-50s. Naturally, this is also an age where the small things in life, the day-to-day comforts, become more important to people.
It’s fine and normal to spend more as you get older and start making more money. But again, the key is control. You can and should spend more if you earn more and improve your lifestyle. But you still need to do so within a budget.
Examples of lifestyle creep
Near-retirees
Nearing retirement, people normally spend a lot too. It’s not hard to imagine:
- You’ve never earned as much money as you are earning now
- You are starting to become physically weaker
- You might start to experience serious health problems
- You may be developing health challenges like arthritis that make daily life harder
- Your hearing and vision are getting weaker
- Your children are likely a much smaller part of your life than they used to be
So, what do you do? Well, while you are continuing to work, you are going to spend more to make the normal challenges of aging less impactful on your life. Whereas you once would be happy with very little, you now want:
- The most comfortable bed and pillows
- The most comfortable and enjoyable car
- Healthier, more expensive food
- Luxuries you wouldn’t have been able to afford until recently
Younger adults
Lifestyle creep can also be felt by the young.
The young are notoriously pinched by slow wage increases and higher costs for basics like housing and groceries. So, what happens when you’re in your late 20s or early 30s and you suddenly land your first amazing job?
If you’ve been sleeping on a mattress on the floor in an empty room for years, you may very well want a big lifestyle upgrade. Or maybe you haven’t had it that bad; perhaps you landed a decent job and/or lived with your parents for your early 20s.
Either way, you suddenly want to catch up on the basic comforts that your parents and grandparents could have expected. But the reality of the current costs of living doesn’t end up helping you, so you end up with the challenges associated with lifestyle inflation.
Conclusions: Lifestyle creep effects
Lifestyle creep doesn’t have to derail your financial goals, but it does require your active attention and intentional planning.
Remember, the goal isn’t to live like a pauper despite earning more – it’s to strike a thoughtful balance between enjoying the fruits of your labor and securing your financial future.
The next time you receive a raise, bonus, or new job offer, take a moment to pause before the spending begins. Celebrate your success, then sit down with your budget and make deliberate choices about how that extra income will serve both your present happiness and your future security.
Your older self will thank you for the discipline you show today.
After all, true financial success isn’t measured by how much you can spend, but by how much you can save and invest while still living a life you genuinely enjoy.
Master the art of controlled lifestyle enhancement, and you’ll find that your increased income becomes a powerful tool for building lasting wealth rather than just temporary comfort.
Editor’s note: This article was originally published Jan 29, 2024 and has been updated to improve reader experience.
