Lifestyle Inflation: What It Is & Tips to Help You Stay Ahead

How social perceptions affect our spending  

Just like in nearly every other aspect of our lives, close family and friends can have a lasting impact on our finances, shaping the way we think about and handle money—for example, how we choose to save or spend. It can affect how we reward ourselves for personal or professional milestones, how we view societal pressures, or the need to “keep up with the Joneses.”

Picture your friend or colleague who seems to always have the latest and greatest phone, car, clothing, and more. Naturally, the more you’re exposed to their extravagant lifestyle, the more you might feel the need to keep up, even at the expense of your more immediate financial goals.

Although it might be tempting to overspend to keep up with the expectations of your social circle, it’s important to remember that you’re only seeing one piece of their financial picture. And while their lifestyle choices may make sense for them, those same choices may not be aligned with your own priorities, values, and budget.

For example, a flashy new sports car could mean costly monthly loan payments, and designer shoes might mean adding another charge to your revolving credit card balance, which could all become a financial headache in the future.

Taking the time to consider the true cost of luxury purchases (and whether these purchases make sense for you) can save you from potential financial stress next time you think about making an upgrade. 

Create thoughtful spending habits

Reining in lifestyle creep doesn’t mean you can’t reward yourself every now and then. Instead, it means focusing on intentional spending so you can enjoy some of the perks that come with earning more while still making smart decisions for your future.

Start by defining your financial priorities and what they mean to you. For example, if you’re looking to achieve financial freedom, does it mean having a large discretionary fund that affords you more day-to-day flexibility? Or does it mean setting yourself up for a comfortable life in your golden years by maximizing your contributions to your retirement accounts?

Once you better understand your motivations, you can build a budget that can help you meet those goals.

Next, look for ways to cut out unnecessary spending and redirect those funds to your financial goals. The money you save by canceling an unused subscription or cutting back on non-essential purchases could be put toward your investments or an emergency cash reserve.

It’s also helpful to review your recent purchases and look for spending patterns. Ask yourself if you’re spending more on luxury or impulse items vs. essential expenses and how can you break that habit?

Paying yourself first adds up

Another smart way to prevent lifestyle creep is to plan for your new income before it becomes part of your everyday spending.

When you receive a raise, bonus, or other income increase, decide how much will go toward savings, debt repayment, retirement, investing, and spending. Giving those dollars a specific purpose can help you enjoy some of the extra income while still making progress toward your larger financial goals.

Automating your finances can make that plan easier to follow. Setting up automatic transfers to savings, investment accounts, or retirement contributions will move money toward your goals before you can get a chance to spend it on something else. 

Here are some ways you can automate your savings:

• Set up recurring transfers.
• Round up the change.
• Direct deposit from your paycheck
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Think of automating your savings as a hands-off way of putting your money to work without you ever having to think twice about it. 

Short-term vs. long-term thinking

While the sentiment “you only live once” might make sense when it comes to trying a new food or singing karaoke, the same thinking shouldn’t be applied to your spending.

Whether you want to own a home, pay off debt, or retire early, staying focused on your financial goals can help keep you from being tempted to overspend. Before you make any large purchase, ask yourself if it brings you closer, or further, from the life you want. Over time, you’ll find that working toward your goals becomes less of choice and more of habit.

A higher income can lead to a more luxurious lifestyle, but it can also mean more savings, less debt, a stronger emergency fund, and greater flexibility if you take a more intentional or thoughtful approach to your spending.

By reviewing your expenses and identifying which upgrades matter most to you, you can enjoy the benefits of earning more without letting lifestyle creep take over your budget.