Is Lifestyle Inflation Creeping Up on You? Here Are 8 Ways to Avoid It

Picture this: You’ve been steadily increasing your income and collecting your well-earned annual bonus. But you’ve also noticed yourself eating out more often, opting for more expensive brands, and making more purchases. 

Lifestyle inflation, or lifestyle creep, is when an increase in earnings leads to a rise in discretionary spending, often leading to less disposable income, fewer savings, and lower financial security. From 2022 to 2023, American consumer spending increased across all income levels by an average of 5.9%, but at the same time, only 54% of adults have 3 months of emergency savings.

Lifestyle inflation is not always a bad thing, and you should not feel guilty for increasing your quality of life. However, some indulgences might be better spent elsewhere, and determining the necessary purchases from the unnecessary ones can help you ensure your long-term financial goals and freedom. 

Here are eight ways to avoid unnecessary lifestyle inflation: 

1. Set Clear Financial Goals 

Clear financial goals will help you evaluate your tolerance to lifestyle inflation, so you can make financial choices with peace of mind. 

Money is deeply personal, and when setting these goals, make sure to contextualize them within your own values. You may ask yourself: 

• Do I care about retiring early? 
• Do I want to focus on traveling while young? 
• Do I want to save for a family home or my children’s education? 

Grounding goals in personal priorities can help you determine your budget and stick to it in the long run. 

2. Make a Budget 

Once you determine your financial goals, making a comprehensive budget can keep your finances organized. With basic guidelines and a record of your spending, you can stay accountable to your goals and control any lifestyle inflation. 

3. Practice Mindful Spending

In a world of online shopping and credit cards, it’s easy to hit the “order now” button without a second thought. However, these discretionary purchases are the main drivers of lifestyle inflation, and it is critical to shop with intention. 

To practice mindful spending, you may ask yourself: 

• Is this a want or a need? 
• Am I only buying this to gain external validation from others? 
• Is this something I actually want or is it just on sale? 
• Would I want this if I hadn’t just received my paycheck? 
• Would I rather put this money towards another part of my life? 

Similarly, you might want to restrict yourself from making a purchase for a week to determine if it’s really worth it. Whether you go forward with the purchase or not, these exercises can help you feel confident that it’s not an impulse buy and that the expense is aligned with your financial goals. 

 4. Determine your financial threshold 

Investing in your quality of life is important, but the bigger car and fancier home may not be “worth it” for you personally. Consider looking back on your significant lifestyle changes, such as house, car, and city, to understand how much you are comfortable spending on each. Downsizing or moving are major changes, but these options may help you reach your long-term goals. 

 5. Create an Emergency Fund 

If it’s not already baked into your budget, make an emergency fund. Budgeting and planning is always helpful, but the future is uncertain, and a fund can assure you that the basics will be covered during a potential crisis. 

6. Prioritize Paying Your Debt 

Remaining debts can be a financial and emotional drag, but prioritizing debt repayment over discretionary purchases can not only help you curb lifestyle inflation but also set you on a path towards financial freedom. 

7. Automate Savings and Investments 

Automating payments into retirement, brokerage, or savings accounts is a one-click step to set yourself up for financial success. Plus, by automating payments and treating savings as a fixed expense, like a utility or phone bill, you can reframe your discretionary spending budget to make more mindful purchases.  

8. Perform regular check-ins 

These tips are helpful starting points, but curbing lifestyle creep requires reevaluation as your income and budget inevitably change. 

When your income changes, consider using the percentage rule, also known as the 50-30-20 rule, a budgeting practice of looking at your income in proportions instead of as numbers, so you allocate money across diverse fields. 

Plus, if you are budgeting with your family or a partner, having honest and non-accusatory check-in conversations can help you stay accountable for combating lifestyle inflation. 

The Bottom Line

Lifestyle inflation can stunt long-term financial growth, but you can avoid the cycle by setting goals, budgeting with intention, making mindful purchases, and regularly evaluating your financial health. Financial advisors can provide professional, personalized support if you want further support.

It’s natural for your lifestyle to become more expensive as your income increases. Staying aware of lifestyle inflation and making financial choices with proactivity and discipline can help you meet your long-term goals.