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

After working hard and earning a well-deserved pay rise, it’s understandable to want to enjoy the fruits of your labour. 

Indeed, you may feel tempted to treat yourself to a nicer car, more meals out, or regular holidays.

While it’s natural to celebrate your success, there is a risk in automatically increasing your spending each time your income rises. 

This is known as “lifestyle creep”, and over time, it could actually make it more challenging to achieve your long-term goals. 

Continue reading to discover exactly what lifestyle creep is and how to manage it.

“Lifestyle creep” involves increasing your spending as your income rises

Lifestyle creep occurs when your day-to-day spending rises as your income grows. This doesn’t usually happen overnight. Instead, you may find that the smaller luxuries gradually become part of your routine. 

For instance, you might:

• Choose branded items instead of own-brand products

• Dine out more often instead of cooking at home

• Upgrade your phone or car more regularly

• Take longer or more expensive holidays

• Give your loved ones more lavish gifts.

While these seemingly insignificant changes can feel harmless on their own, taken together they can raise your expenses significantly.

Perhaps one of the main challenges with lifestyle creep is that it can go unnoticed until your monthly outgoings have risen considerably.

You could inadvertently affect your financial security when you spend more on luxuries

Higher spending might not initially seem problematic if your income can still comfortably cover your lifestyle. 

Difficulties come when your outgoings – including any wealth you contribute to savings and investments – exceed your income over time.

If you allocate new income to unnecessary luxuries rather than your long-term plans, you may risk weakening your future financial security. 

Your retirement, in particular, might be affected. 

If you increase your outgoings each time your earnings rise, you might find that you’re contributing less to your pension or investments.

Over the short term, the effects might not be apparent. Over the long term, however, these missed contributions – and the lost compound growth they cause – could leave you with a much smaller retirement fund than you had anticipated.

There’s also the chance that this higher standard of living becomes the new normal. Once you’re used to spending at this level, you might find scaling back challenging, even if a sudden change in circumstances means you need to scale back. 

For instance, a period of unemployment due to a health issue could leave you financially vulnerable if you don’t have the flexibility to reduce your monthly outgoings. 

Moreover, if your expenditure rises during your working life, you may set expectations for retirement that are difficult to meet. 

Without adequate planning and preparation, you may be left with a shortfall in savings for the next phase of your life, meaning you’ll have to compromise on your desired retirement lifestyle.

By thinking about how you use your wealth, you might be able to avoid lifestyle creep

Thankfully, there are ways you can still enjoy a higher income without allowing lifestyle creep to affect your financial security. 

To do this, it’s vital to decide how to use your additional wealth while keeping your long-term goals at the centre of your plans. Here’s what to do next.

Clearly identify your long-term goals

A practical first step is establishing clear financial goals. 

When you know exactly what you’re working towards, you’re more likely to prioritise saving and investing. These milestones could include building an emergency fund, supporting your children through university, or achieving a comfortable retirement.

These defined goals also give you a way to measure progress and keep yourself motivated.

You might also want to adopt the habit of saving before you spend. When you receive a pay rise, it may be prudent to increase your pension contributions or direct part of your increased income into an Individual Savings Account (ISA) before adjusting your lifestyle.

Automating this process could make saving even more straightforward, as doing so will remove any temptation to spend first.

Just remember that social pressures, especially on social media, can encourage unnecessary spending through FOMO (fear of missing out).

It’s essential to keep your personal goals in mind to reduce any risk of making financial choices aimed at keeping up with someone else’s lifestyle.

Over time, consistently prioritising your future in this way can significantly boost your financial resilience.

Take time to review your budget

It’s also essential to regularly review your budget. 

Tracking your income and expenditure allows you to spot small increases before they snowball into larger commitments. 

You might find that certain habits, such as buying takeaways or upgrading devices, have crept in without your realising. Being aware of these changes can help you make more conscious decisions about whether they genuinely add value to your life.

Strike a suitable balance between saving and spending

Above all, it’s essential to strike a balance. Completely denying yourself the enjoyment of your hard-earned income can feel restrictive and unsustainable. 

Conversely, allowing yourself occasional treats or luxuries can help you stay motivated while keeping your long-term plans on course. 

To stick to this mindset, it’s vital to ensure that any decisions you make are deliberate, rather than automatic. 

Indeed, booking a special holiday as a reward for reaching a retirement saving milestone will likely feel far more meaningful than simply increasing your spending without thought.

Get in touch

We can help you efficiently work towards your long-term goals while avoiding the effects of lifestyle creep.

Email info@athertonyork.co.uk or call us on 0208 882 2979 to find out more.

Please note

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

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.