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What is Lifestyle Inflation and How to Avoid It?

Updated: Mar 13, 2023

Lifestyle inflation is a common phenomenon where individuals increase their spending as their income rises (another latte for every $1 raise!!). As a result, they continue living paycheck to paycheck and struggle to save money for their future. I have to admit that I fell victim to this early in my career.

In this article, we will discuss the causes of lifestyle inflation, its negative effects, and strategies to avoid it.

What Causes Lifestyle Inflation?

Lifestyle inflation can occur due to various reasons. I've fallen for each and every one of these:

  • Keeping up with the Joneses: People tend to compare their lifestyle with their peers and feel the need to match or exceed their standard of living. I recently heard a friend got a new car and immediately felt as though I should reconsider whether or not I can/should buy a new car (I'm still falling into this trap!).

  • Earning more money: As people earn more, they tend to spend more on things they couldn't afford before.

  • Inflation: The rising cost of goods and services can also contribute to lifestyle inflation. Now, when I read about this one, I didn't think it really fit because I consider lifestyle inflation as buying more things as we can afford more things, but in today's environment I wanted to keep this in the article.

Negative Effects of Lifestyle Inflation

Lifestyle inflation can have a negative impact on your financial and mental health. Some of the consequences of lifestyle inflation are:

  • Increased debt: As you spend more, you may end up relying on credit cards and loans to finance your lifestyle, leading to higher debt.

  • Decreased savings: When you spend more, you have less money to save, which can make it difficult to achieve your long-term financial goals.

  • Less financial freedom: If you're living paycheck to paycheck, you may have less flexibility in your career and life choices.

What Is Lifestyle Inflation?

Lifestyle inflation is the gradual increase in spending that occurs as income rises. As people earn more money, they tend to spend more on discretionary items, such as eating out, vacations, and entertainment. This can be particularly true for those who experience a significant increase in income, such as a raise or promotion.

While it's natural to want to enjoy the fruits of your labor, lifestyle inflation can quickly become a problem if left unchecked. As expenses increase, it can become more challenging to save for emergencies, retirement, or other long-term goals. Additionally, the more you spend, the more you need to maintain your lifestyle, which can create a cycle of needing to earn even more money to sustain it.

How Do You Avoid Lifestyle Inflation?

Avoiding lifestyle inflation starts with being mindful of your spending habits. It's essential to distinguish between needs and wants and to prioritize spending on the former. Here are some tips on how to avoid lifestyle inflation:

1. Create a Budget

Creating a budget is an excellent way to track your income and expenses and ensure that you're living within your means. Start by identifying your monthly income and fixed expenses, such as rent or mortgage payments, utilities, and insurance. Then, allocate money for discretionary expenses, such as entertainment and dining out.

2. Automate Savings

Automating savings is a great way to ensure that you're setting aside money for long-term goals, such as retirement or a down payment on a home. You can set up automatic transfers to a savings account or investment account each month.

3. Avoid Lifestyle Creep

Avoiding lifestyle creep involves resisting the urge to increase spending as income rises. Instead of upgrading your lifestyle, consider putting the extra money towards long-term financial goals, such as paying off debt or saving for retirement.

4. Focus on Experiences, Not Things

Instead of spending money on material possessions, consider investing in experiences that will create lasting memories. This can include travel, hobbies, or spending time with loved ones.

Is Lifestyle Inflation Bad?

Whether lifestyle inflation is good or bad depends on your individual goals and values. While it may be tempting to upgrade your lifestyle as your income increases, doing so can limit your ability to save for the future. On the other hand, if you prioritize experiences and value them over long-term financial goals, lifestyle inflation may not be a problem for you.


Ultimately, the key to avoiding lifestyle inflation is to be mindful of your spending habits and prioritize your financial goals. By creating a budget, automating savings, avoiding lifestyle creep, and focusing on experiences, you can build a lifestyle that is both fulfilling and financially sustainable.

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