‘Lifestyle creep’ describes the tendency we all have to spend more as we earn more. Of course, a level of lifestyle inflation is inevitable and quite natural – most of us don’t live as frugally as we did when we were students, or starting out in our first job. But if unchecked this can create the unwelcome situation where although we earn more, we end up worse off overall.

Being aware of lifestyle creep and how it works, will help you avoid it having a negative impact on your finances.

What’s wrong with lifestyle creep?

• If your spending increases in line with your earnings you won’t actually be better off overall. Your idea of how much is ‘enough’ will always be just out of reach. You may even be worse off if a higher salary has enabled or encouraged you to take on more debt.
• That debt might be in the form of a bigger mortgage, but it can also include car financing, credit cards and personal loans. Many of these have high APRs which can mean costly monthly repayments.
• The more you spend repaying debts, the less money you have to save each month towards a short-term ‘rainy day’ fund or longer-term savings.
• If your increased income is spent on holidays and the latest technology, it won’t be available to help you build long-term wealth.
• These factors could leave you vulnerable to financial shocks — whether that’s losing your job, being unable to work if you fall ill, facing higher future interest rates or any other unexpected costs life tends to throw our way.

How to fight lifestyle creep?

The key to fighting lifestyle creep is to put your ‘life goals’ ahead of your ‘life-style’! We’ve gathered 5 simple money principles to help you get started.

1. Think long-term

Many of us overspend because we focus on our short-term needs instead of our longer-term objectives. Work out what your longer-term goals are: be it becoming debt-free, enjoying your retirement or helping the children through higher education. Then look at what savings you need to make to achieve these goals. Put a positive spin on this ‘sensible’ saving: think of it as buying financial freedom instead of the latest phone!

2. Practice “mindful” spending

It’s easy to see spending as a justified ‘reward’ if we’ve had a stressful week or when other problems arise. But this immediate gratification might be leading to more financial stress in the long run. Take a more mindful approach to spending money – before you buy something, ask yourself: 1) why am I buying this?; 2) do I really need it?; 3) how much time has it taken me to earn the money I’m about to spend?

3. Avoid trying to keep up with the Joneses

Try not to compare your spending habits and lifestyle with work colleagues or friends, as this can easily ramp up your lifestyle creep. Trying to ‘keep up’ is a slippery slope that can lead you to spend money you don’t have and get yourself into (more) debt.

Remember a lot of what you see on social media often isn’t the full picture and someone else’s dream lifestyle may be financed through expensive debt. If you were already comfortable living at your previous level of income, don’t feel the need to increase your spending just because you can or to convey a certain image.

4. Inflate your savings

Each time your salary increases, aim to boost regular savings by the same proportion: so if you get a 5% annual increase, boost short term and pension savings by the same margin. This will help ensure your savings more accurately reflect your current and desired future living standards.

5. Save smart – automate it!

There are a number of tricks that can help you minimize lifestyle creeps, from setting short and long-term saving targets, giving your savings pots names e.g. ‘my pension fund’ might sound a bit boring, but your ‘Make work optional fund’ might inspire and encourage you to contribute more.