Avoiding Lifestyle Creep: How to Resist Increasing Spending Despite a Big Pay Raise

Opting to shop at a specialty farmers market instead of a discount grocery chain or taking a cab rather than public transit are subtle ways in which your expenses can increase as your income rises.

Over time, these seemingly minor decisions can result in a phenomenon known as lifestyle creep, where you tend to spend more as your income grows.

According to experts, this behavior can negatively impact your financial resilience in the future.

Kalee Boisvert, a financial adviser at Raymond James, explains that when individuals are not mindful of their expenses relative to their income, they easily and quickly increase their spending each time they receive a salary increase.

She notes, “What may begin as purchasing Starbucks daily instead of brewing coffee at home can rapidly progress to flying first class, owning designer bags, and upgrading to a luxury vehicle.”

If left unchecked, Boisvert warns that this can lead to feelings of guilt for not enhancing your net worth despite higher earnings.

Shannon Lee Simmons, the founder of the New School of Finance, identifies several triggers for lifestyle creep, including a significant salary increase, acquiring a new job that alters household income, or prolonged deprivation leading to a careless attitude.

Moreover, major life events like having children can elevate living expenses and, at times, contribute to lifestyle creep, Simmons mentions.

For instance, she explains that if all the children are attending summer camp, parents may feel pressured to keep up with the spending to ensure their child isn’t left out.

While daily expenses may go unnoticed initially, Simmons warns that people lose the ability to save money in the long term when trapped in a cycle of lifestyle creep.

As individuals achieve financial milestones, Boisvert recommends rewarding themselves with lifestyle upgrades and spending money on things that enhance their life.

She emphasizes the importance of aligning spending with goals and values to ensure it brings value to one’s life.

Boisvert advises conducting frequent audits and reviews of expenses, particularly after significant life changes, to keep lifestyle creep in check.

Simmons suggests analyzing bank and credit card statements to identify purchases that you don’t recall making and determining areas where sustainable cutbacks can be made.

She cautions against mixing up lifestyle creep with adjustments to the cost of living, stating that the former deals with choices while the latter pertains to changes in basic living expenses.

One strategy to combat lifestyle creep is to resist letting salary increases impact spending habits, Simmons proposes.

Boisvert recommends setting up automated transfers into a savings account to work towards long-term goals and curb impulse spending.

Ultimately, the key lies in making conscious choices about where your money goes and ensuring it aligns with your values and goals, Boisvert concludes.