Careless Spending Can Erode Income Gains

Episode 324 – If your income goes up over time, it doesn’t necessarily mean that you’ll be able to save more. If you’re not careful, “lifestyle creep” can make things worse. Here are a few ideas on how to fight back against lifestyle creep.

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Transcript of Podcast Episode 324

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, careless spending can erode income gains.

It may be counterintuitive, but sometimes doing better financially can do more harm than good to your savings. This is due to a phenomenon known as lifestyle creep. Lifestyle creep, sometimes referred to as “lifestyle inflation,” occurs when your spending increases as your income rises, turning yesterday’s luxuries into today’s necessities. Without realizing it, this slow increase in expenses can make it difficult to save money and reach your financial goals.

Increases in online shopping, subscription services and food delivery can all be indicators of lifestyle creep.[1] The result is that, in spite of your improved income, you begin saving and investing less and less. What can you do if you see this happening to you?

Here are a few ways to resist the impulse spending that comes with lifestyle creep:

1. 
   
2. Use a “buy list.” Resist the impulse to purchase something by instead creating what’s called a “buy list.”[2] Put the thing you want to buy on that list. Then, after a designated period of time, say ten days or so, if you still feel like you want it, go ahead and make the purchase.[3]
   
3. Set up an automatic investment plan. In other words, pay yourself first. You can get money automatically transferred every month from your checking account to a mutual fund or a savings account. Or your employer might also be able to deposit a portion of your paycheck directly into your savings or investment account, or into a cash value life insurance policy. The idea is to save the money before you have a chance to spend it.
   
4. Realize that there may be emotional reasons for lifestyle creep. Sometimes it’s jealousy or personal insecurity that leads us to spend more.[4] If you see this happening, it may be time to think about the things that influence you and how to change them. For example, you may want to spend more time with people who really appreciate you.[5] Also, social media doesn’t help. People tend to want to live like others they see online.[6] Perhaps a social media budget or social media vacation can help.
   
5. If you don’t have a budget, maybe it’s time to get one. One of the most basic ways to do this is to simply set some limits. Decide how much to spend on discretionary items and find a way to stick to it. Make sure you carefully track your spending. Numerous online budgeting tools can help. Also, be sure to review the plan regularly to see how you’re doing and adjust if needed.
   
6. Become an educated consumer. There may be cheaper options for expensive stuff or experiences. You just have to look around. Perhaps a used item can give you the same satisfaction as a new one.
   
7. Think carefully if you get a bonus at work. If you get a bonus, it may be a good idea to put it directly towards your savings, so it’s already out of sight and out of mind.
   
8. Audit your spending. If you take a serious look, you may find some extra things that have sneaked into your spending habits. Are they necessities? If not, it may be time to cut back. Every dollar counts!
   

If your income goes up over time, it doesn’t necessarily mean that you’ll have more money in your savings or checking accounts. Very often it does, but if you’re not careful, lifestyle creep can kill any progress towards your financial goals or even make things worse. The best way to deal with this is up to you, but careful planning and simply thinking through your spending is a good start.

This doesn’t mean that you’re never going to splurge. There’s no need to get too worried about small, infrequent, indulgences.[7] Focus on the bigger picture.

[1] Tam, Ruth and Aslam, Michelle. “If your spending is eating your savings, you might be experiencing ‘lifestyle creep’.“ NPR.org. https://www.npr.org/2022/07/13/1111300716/lifestyle-creep-definition (accessed March 10, 2025).

[2]  Id.

[3] Id.

[4]  Id.

[5] Id.

[6] Gould, Wendy. “The Seductive Trap of the Lifestyle Creep.” Verywellmind.com. https://www.verywellmind.com/lifestyle-creep-8667848 (accessed March 14, 2025).

[7] Tam, Ruth and Aslam, Michelle. “If your spending is eating your savings, you might be experiencing ‘lifestyle creep’.“ NPR.org. https://www.npr.org/2022/07/13/1111300716/lifestyle-creep-definition (accessed March 10, 2025).

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