It’s human nature to always want more than we have. Speaking of… you may have noticed that the more money people make, the more they spend. This is a phenomenon known as lifestyle creep, or lifestyle inflation.

We define this situation as the unconscious upgrading of our lifestyle which ends up costing us more money. And aside from the ability of lifestyle creep to sneak up on us, one of the other challenges is that it is often difficult to turn back the clock and downgrade our standard of living. 

As the old saying goes, it’s hard to put the cat back in the bag.

Is lifestyle creep inevitable? In this article we’ll break down some widespread examples of lifestyle creep, why it happens, and how we can thwart lifestyle creep from derailing our personal finances.

What is Lifestyle Creep?

When a rise in income leads to an increase in spending on living expenditures and nonessential expenses, this is known as lifestyle creep.

With lifestyle creep, luxury items and discretionary spending are regarded as a right rather than a choice. Or as a requirement rather than a desire. Think needs versus wants. The drawback of this creep is that when income drops, such as with unemployment or retirement, folks may run out of money as they continue to live above their means.

Simply put, lifestyle creep is when your income increases, resulting in an increase in your spending. In some cases, your spending increases more than the income. Despite earning more, you’re in a more financially precarious position.

For example, let’s say you got a job promotion with a 15% raise. Awesome! To celebrate your hard work you buy that new Tesla you’ve had your eye on. If you were earning $100,000 a year, a 15% raise would be an extra $15,000 a year – up to $115,000. However, the cheapest Tesla is going to set you back at least $40,000. 

Examples of Lifestyle Creep

Here are some of the main areas we’ve all subconsciously adopted lifestyle creep over time…

• Houses – The median home size in 1950 was just under 1,000 square feet. Large families got by just fine in those days. But by 1980 average homes were just over 1,500 square feet, and today homes average 2,700 square feet! That’s some serious lifestyle creep right there that’s not on the individual choice level.

• Toys – Did you know that the average American household now has at least 2.5 television sets with 31% of folks having 4 or more! That’s in addition to other screens like iPads/tablets, smartphones, Kindles/e-readers, and portable video game consoles we carry around with us constantly. Our societal desires have also increased substantially as new products make our lives easier and provide more entertainment.

• Cars – Our cars have gotten bigger too – and much fancier. Over the past few decades, cars, on average, are one-third bigger than they used to be. For example, today’s Honda Accord is quite larger than a model from 1990. As a result, the larger the vehicle, the more expensive it’s going to cost to maintain.

• Food – Even though the cost of food has gone down over the decades, overconsumption is a massive problem in our country. Portion sizes have gone up significantly at restaurants in recent years. What we’re being served is far more than what our parents’ generation was being served in terms of grams, calories, saltiness, and more.

As you can see, lifestyle creep is baked into everything we do. It’s not entirely bad (I happen to love my large car that fits my whole family comfortably and safely), but you’ll agree that there’s definitely a lot of unnecessary consumption in our world today.  

7 Ways to Avoid Lifestyle Creep

We’re not saying you should opt out of all luxuries and go back to living like it’s 1950. But we do encourage you to always live within your means, and to make a distinction between your true needs vs. wants.

Here are some ways you can avoid lifestyle creep, and still have just as much fun.

1. Budget according to your goals

If you budget based on how others around you are living, you’ll never have enough. (You’ll also never feel great about your financial situation.)

You need to budget for your specific goals. Remember, it’s your money and your life. Identifying the “why” behind your money is an important part of goal setting and budgeting.

Intentionally choose areas of your budget that you don’t want to increase. For us, eating out is that category. We’ve set low expectations for what we’ll be spending on restaurant/fast food costs for our family. And it’s easier to be content when we’ve made that conscious decision. Since we’ve decided that no more money is going in that bucket, it forces us to live within those parameters.

It doesn’t feel like deprivation when you’ve chosen that path and budgeted purposefully. So choose an area or two of your budget that you’ll expand when your income goes up but choose others that you want to specifically keep fixed at a low level.

Related posts:

• Should You Buy It? A Flowchart & Question Checklist
• How to Fix a Failing Budget

2. Make gradual changes instead of quick big ones

The way the hedonic treadmill works, those smaller and more incremental changes won’t hurt your finances in the same way that bigger, more expensive shifts will. However, oftentimes we can realize a similar amount of value or benefit by taking things slowly.

For example, you might decide that it’s important for your family to have help cleaning your house. That’s OK! Just don’t go from all DIY to having a cleaning company come out once a week. Instead, have them come out once a month and continue to do some of the regular cleaning yourselves.

Incremental changes will cost you much less, but it will also make that new spending line item feel more special. Take it slowly. Building frugal habits can take a while.

3. Hang out with folks who have similar goals

Whether you realize it or not, the people you surround yourself with will impact your ability to be content and avoid lifestyle creep.

Before you go ditching all your friends (although that would likely help you cut down on unnecessary spending) know that the folks who you hang out with the most are going to have a major impact on how you view “normal” life. So try to find a few close friends who have similar frugal values as you, including the way they view and handle money.

And you might get extra inspiration by joining online tribe of money nerds. If that’s the case, be sure to join the HTM Facebook group!

A good way to see if your friends are your type of long term peeps is to propose some of these frugal hacks or money challenges. If they turn their nose up and snob you, maybe it’s time to stop hanging out with them. But if they embrace the challenge, maybe they want to make changes in their life, too! You can be a good influence to those folks.

4. Get excited for “future you”

Saving instead of spending doesn’t have to be done out of drudgery. It can be a way to get excited about the years where YOU will have more financial freedom.

We probably have no idea what we’re going to be doing in 10, 20, or 30 years time. Make that connection to saving and investing more as something you are doing for “future you.” That can help you feel more connected to the process. It makes you less likely to spend all the cash that’s coming in today.

Not to mention, delaying lifestyle upgrades usually means you can afford even more down the road. For example, instead of spending $30,000 this year on a new motorcycle, investing that money for 20 years instead means it’ll grow to $140,000 (assuming 8% compound interest rate!)  If you delayed buying that bike, you could blow $40k on a new ride, and still have $100k left over.

If you’re having a hard time sympathizing with future you, take a selfie and run it through an app like AgingBooth or FaceApp that will show you what you might look like in a few decades. Stats show that just doing that can make people more keen to save and invest for their own future. 

5. Practice mindful spending

Mindful spending is simply being deliberate in how you spend your money. It’s attaching your spending habits to your life goals and ideals.

We all have our moments of weakness. We’ve all blown money on something we wish we hadn’t. Feeling fatigued, worried, or unprepared can lead to irresponsible spending, which can cause regret. Unfortunately, many impulse purchases do not make us happier – they make our lives more stressful and add more clutter to our homes.

Mindful spending practices will enable you to utilize money as a tool to bring you closer to the things that matter to you. Here’s some more great info about mindful spending, including practical applications.

6. Inflate your investments proportionately

If you’ve recalibrated your budget according to your goals and you still feel the desire to inflate your spending, do yourself a favor and beef up your investments first.

You can easily accomplish this by setting up automatic transfers into your preferred investment account(s). For example, if your company offers a matching retirement account, allocate a percentage of your paycheck to go straight into that investment account. Or, you could automatically bump up your contribution percentage by 1% each year, inflating your investments without thinking about it.

Upgrading your lifestyle as you get pay raises isn’t entirely bad, but it’s important to do it in moderation. As long as you’re upgrading your investment contributions also, you’re not damaging your savings rate.

7. Preassign future raises

If you know a raise or bonus is about to hit your paycheck, chances are you’ve already thought about ways to spend that money. But what if you’ve assigned that money already to more important financial goals?

Many folks working in the corporate world are accustomed to receiving an annual raise. On average, employees will see anywhere between a 1% to 5% increase in salary each year. If you work for a company that provides you with a raise at a predetermined time, use this is to your advantage! 

Don’t count your chickens before they hatch. But take that knowledge and preassign those extra dollars toward any lingering debts you may have or towards beefing up your savings. With less debt on hand and more money in the bank, you’ll have more breathing room. And that will allow you the flexibility to dedicate future pay increases towards more exciting endeavors.

The Bottom Line

In certain aspects, lifestyle creep is inevitable. Inflation plays a role in the things that we buy, which cost more over time. Despite advances in technology that has allowed for food and clothing to be produced for less money, Americans are still finding ways to spend every last dollar they make.

Lifestyle creep has taken on a life of its own in our country and it’s costing us!

However, there’s a lot we can do to change our perceptions of what it means to have “enough.” Just because the average home size is more than double what it used to be doesn’t mean that we have to aspire to that ourselves. While prices will inevitably rise over the years, lifestyle creep is still something we can limit in our own lives. 

And it won’t just save us money and make us more financially secure, it’ll make us happier too.

Related posts:

• Fun Saving Money Challenges to Try
• The Pros and Cons of Frugality
• Saving vs. Investing — planning for both

Beer notes:

While discussing lifestyle creep we enjoyed a Hobnail by Urban Artifact Brewing. Big thanks Sondra for donating this one to the podcast! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

Best friends out!