What is “lifestyle creep” and how can you avoid it?

If you receive a pay rise or an unexpected windfall, it might feel tempting to upgrade your lifestyle by treating yourself to a few extra luxuries each month.

However, automatically increasing your spending in line with your income – “lifestyle creep” – without having a long-term financial plan in place, could potentially mean that you’re missing out on opportunities to maximise your savings and investments.

Indeed, according to research published by PensionsAge, nearly one-third of people in Britain aren’t saving for retirement. Additionally, Money Marketing has revealed that the number of people investing in 2023 fell 6% compared to the previous year.

In contrast, creating a financial plan and starting saving and investing as early as possible could help you to achieve your long-term goals.

Read on to learn more about lifestyle creep and discover five tips for avoiding it.

Recognising the signs of lifestyle creep

Lifestyle creep or “lifestyle inflation” occurs when you gradually increase your living expenses and discretionary spending as your income rises.

It might happen if you receive a pay rise, inheritance, or other unexpected lump sum.

It’s not always easy to recognise this change in spending habits – indeed, it can “creep” up on you. Here are a few signs to look out for:

  • Starting to shop at more expensive stores
  • Buying more branded goods
  • Eating out more often
  • Upgrading your car or your holidays
  • Giving generous gifts to loved ones
  • Increasing your credit card debt.

Lifestyle creep comes in many forms, but it generally equates to an overall upgrading of your living standards.

While large purchases, such as cars and property, may be more noticeable, smaller changes in spending habits can add up over time and impact your monthly outgoings.

This, in turn, could affect your long-term financial plans by limiting the amount of disposable income you have to contribute to retirement savings, your emergency fund, and so on.

Increasing your spending could also potentially lead to higher levels of debt. According to research published in Money Marketing, higher earners generally borrow more than those on lower incomes. Higher earners are also more likely to have borrowed at a higher percentage of their income.

Luckily, once you recognise lifestyle creep, there are steps you can take to keep it in check or avoid it altogether.

5 tips for avoiding lifestyle creep

1. Set and prioritise your financial goals

Having a financial plan with personalised short-, medium-, and long-term goals could help you avoid lifestyle creep by:

  • Keeping you motivated to stick to your plan
  • Allowing you to monitor your progress towards your goals
  • Helping you set spending priorities and cut unnecessary expenditure
  • Informing achievable action plans, which you can adjust as needed.

Identifying and understanding your overarching financial purpose could allow you to set meaningful goals that will keep you motivated in the long term.

Read more: Money mindset: Do you know your financial “why”?

Furthermore, physically writing down your goals is a powerful practice that can help you clarify and focus on what you want to achieve.

So, effective goals setting could help you make better financial decisions and avoid lifestyle creep.

2. Pay yourself first

“Paying yourself first” means treating your savings and investments as a monthly expense like any other.

One simple way to achieve this is to set up automated savings and investments so that a percentage of your income goes directly to these accounts each month.

This could help you avoid the potentially negative effect of lifestyle creep on your long-term financial plans by removing the temptation to spend before saving.

It could also help you build up an emergency fund to cover unexpected expenses or a drop in your income.

3. Create and stick to a budget

Creating a budget can be a useful way to plan and monitor changes in your spending habits, such as lifestyle creep.

You could start by making a list of all your monthly income and expenditure. Looking at what you’re spending, and where, might allow you to identify opportunities for cutting back.

Once you’ve planned how you want to spend your money each month, regular reviews of your budget may help you spot early signs of lifestyle creep and take action to rein this in.

If sticking to a budget seems like a challenge, consider how it might help you achieve your long-term financial goals. Understanding the milestones you’re working towards might be a good way to keep you motivated in the short and long term.

4. Don’t be too strict on yourself

Of course, it OK to treat yourself from time to time. If your income goes up or you receive an unexpected windfall, you may want to make changes to your lifestyle.

Allowing yourself some non-essential spending could help you stay motivated to achieve your financial goals.

For example, you might choose to reward yourself for achieving a savings milestone.

Factoring in some lifestyle upgrades that fit with your budget, goals, and long-term financial plans can be an effective way of keeping lifestyle creep in check.

5. Live your own life

It may be hard to avoid comparing yourself with others, especially if social media is bombarding you with updates about your friends’ and family’s recent purchase, holidays, and successes.

However, trying to “keep up” could lead to emotional decision-making and unnecessary spending that could compromise your long-term financial plans.

Instead, focusing on your goals could help you take control of your finances and avoid unnecessary lifestyle creep.

A financial planner can help you keep your plans on track and boost your confidence in managing money in a way that suits you (not others).

Get in touch

If you’d like to learn more about how to create a financial plan that supports your long-term goals, we’d love to hear from you.

Please email us at mail@delaunaywealth.com or call 0345 505 3500.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.