Lifestyle Creep: How To Avoid the Trap and Save More (2024)

When you get a promotion or raise, the additional income often makes it easy to break your rigorous financial habits. The celebratory splurges of a new lifestyle can creep up on the best of us – and quickly become a new normal, leaving no more room in the budget to stash more money into a savings account for the future.

While the extra money might help at first, so-called “lifestyle creep” or “lifestyle inflation” can ultimately keep you from improving your finances despite a significant increase in income.

The guide below clarifies the symptoms of lifestyle creep and how they detract from achieving financial independence. Our findings incorporate expert insights on navigating lifestyle creep and regaining control over your finances.

Key Findings

• Lifestyle creep happens when your expenses grow faster than your income.
• While average wages increased by 21.4% from January 2020 to January 2024, personal savings rates plunged 47.2%.
• The share of families with difficulties paying bills increased from 35.7% in 2022 to 37.8% in 2023, according to the Consumer Financial Protection Bureau.
• Crafting a mindful budget, maintaining your savings routine and avoiding impulse spending can help you avoid lifestyle creep and remain financially flexible.

Lifestyle Creep Explained

Also known as “lifestyle inflation,” lifestyle creep is a term used to describe people’s rising standards of living and expenses in response to increases in income. This often leaves people in a similar financial position, despite earning more money.

The lifestyle creep phenomenon explains why some people continue to live paycheck-to-paycheck even after getting a raise or a new job with a higher salary.

Data from the federal government indicates that this might be a common experience across the country. While wages are rising quickly, so are expenses – and personal savings are on the decline.

U.S. Employment and Wages Are Up, But Savings Are Down

As Americans recover from the lingering effects of the pandemic, some economic indicators are looking up. The percentage of unemployed workers has fallen significantly from the 14.8% unemployment peak in April 2020, reaching 3.8% in March, according to the U.S. Bureau of Labor Statistics. This is a return to pre-pandemic levels: The unemployment rate stood at 3.6% in January 2020.

Average wages improved sharply as well, rising 21.4% from January 2020 to January 2024. However, despite a relatively steady increase in average wages, personal savings rates remain lower than pre-pandemic levels.

In fact, personal savings rates plummeted by nearly half from January 2020 to January 2024 – falling from 7.2% to 4.4%, according to the U.S. Bureau of Economic Analysis.

Personal savings rates spiked uncharacteristically between March 2020 and April 2021 as the federal government distributed economic stimulus checks, with the savings rate peaking at 32% in April 2020. However, the personal savings rate fell to 3.6% in February 2024, down 1.1 percentage points from one year prior.

Why Americans Have a Hard Time Saving Money

Unraveling the complex weave of lifestyle creep requires a detailed look at the balance of income, expenditures, and savings many Americans attempt to achieve yearly or even monthly.

Many Americans Are Living Paycheck to Paycheck

In a static economic environment, income increases allow for greater flexibility. Yet, historically high inflation rates have contributed to an increase in the number of households struggling to make ends meet. About 70% of all households live paycheck-to-paycheck, said Dr. Roberts of Baylor University.

“With high housing costs and food inflation, just getting by can be a challenge,” said Dr. Ackert of Kennesaw State University. “Plus, we must recognize that many Americans are burdened with student loans, credit card debt, and medical expenses.”

‘Lifestyle Creep’ Can Be an Obstacle to Savings

Despite the economic implications of lifestyle creep, the allure of adjusting our lives to the additional money we make often stems from the subconscious.

“As humans, we are incredibly adept at adjusting our expectations as our circ*mstances change,” Roberts said. “We continue to spend more but we don’t increase our happiness level. We merely adapt to our current situation and set our sights on the next highest level of consumption.”

In Roberts’ book “Shiny Objects,” he describes this as the “Treadmill of Consumption,” or TOC. “The TOC argues that as we buy more and more, we get no closer to happiness but merely speed up the treadmill,” Roberts said. “At some point, our ability to keep pace with the treadmill falters. Without the handrails of healthy financial habits, we’re left grasping at thin air.”

The Lifestyle Creep Trap: Why It Happens

No singular move will land you in the lifestyle creep trap. Many factors can lead you to spend money on wants rather than needs.

‘Keeping Up With the Joneses’ Is Human Nature

Especially with social media, it’s easier than ever to compare your life to what others portray. “In today’s world, social media has exacerbated this phenomenon. In a world where people share so much of their beliefs, attitudes, and behaviors on social media, people are overwhelmed with an abundance of information that can be perceived as normative,” said Dr. Pfeiffer of the University of New Hampshire. “These social comparisons can lead to unrealistic expectations for their own lives, and this leads to people spending more money than they can afford,” he adds.

Present Bias Affects Our Decision-Making

Smartly managing your finances often requires a delicate balance between immediate and delayed gratification. It’s the difference between saving $20 on lunch by eating at home versus enjoying a quick bite. “Many of us are willing to take a smaller reward today, even if the reward is larger in the future if we wait,” Dr. Lucy Ackert said. “We find it difficult to resist the enjoyment of current consumption even if we realize we should save for tomorrow.”

Credit Products Make It Easy To Fall Behind

Delaying direct payment for a product or service by using your credit card can help bridge the gap until your paycheck arrives. However, high credit limits can actually encourage careless spending. “I call credit cards ‘spending facilitators,’” Dr. Roberts said. “We are more likely to buy and spend more when we can use credit instead of cash or write a check – remember those?”

How To Avoid the Trap of Lifestyle Inflation

Recognizing you may have fallen into the trap of lifestyle creep isn’t a financial death sentence. Instead, it’s a wake-up call to take action and prevent it in the future. Use the tips below to help establish the financial guardrails you need to avoid lifestyle inflation.

Live By Your Budget

Nearly every piece of financial advice starts with a budget — for a reason. “A good rule of thumb is that we should be saving 15% of our after-tax income,” Dr. Roberts said. “Our house payments should be no more than 25% of our after-tax income. Max out or at least match your company’s 401(k) contribution.” Staying within the boundaries of your budget can put you back on track toward financial control.

Set Up Your Deposits To Do the Work For You

Automate your savings by separating the amounts you want in each account – ideally in one of the best high-yield savings accounts. “Take your monthly savings out of your paycheck before it hits your checkbook where it will likely be spent,” Dr. Roberts said. “You will be surprised how fast you adjust to the 15% reduction in your take-home — painless savings.”

Avoid Impulse Spending

As tempting as it might be to treat yourself here and there, these are perfect avenues for lifestyle creep to take over. “If we just stop and think, we will often realize that we should fight that initial impulse to spend money today for immediate gratification,” Dr. Ackert said. Think about what you want for 24 hours or more, and if you absolutely still want to make that purchase, compare it to your budget to ensure the funds are available.

Resist Lifestyle Creep and Take Care of Your Future Self

The ultimate goal of avoiding lifestyle inflation manifests as protecting yourself and your finances. “The future seems far in the distance, but I encourage people to imagine it is coming soon so that they can make better financial decisions today,” Dr. Ackert said.

Saving for tomorrow may not feel as gratuitous as whatever you’re contemplating, but the benefits often far outweigh the momentary cost. “You will also be encouraged by how fast your nest egg will grow, which encourages more saving,” Dr. Roberts said.

Methodology

To help readers get a better understanding of the financial environment and savings trends, we analyzed and cited data from federal government sources. We also used interviews with financial experts to add perspectives to these data. In addition, our team asked these experts to provide financial strategies to provide readers with tools to navigate their personal financial situations and avoid succumbing to lifestyle inflation.

Our data sources include:

• U.S. Bureau of Economic Analysis, Personal Saving Rate, 2003-2023
• U.S. Bureau of Labor Statistics, Total Private Average Hourly Earnings of All Employees (Seasonally Adjusted)
• U.S. Bureau of Labor Statistics, Unemployment Rate (Seasonally Adjusted)

Our Experts