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Lifestyle Creep: A Complete Guide

Investment

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5.5.22 |

Joseph Darby

6 ways to avoid the lethal financial trap of lifestyle creep, and when we should embrace it, instead

Lifestyle creep might be one of the deadliest financial traps in modern life.

Worst of all, it can sneak up without us even noticing.

Let’s explore what lifestyle creep is, how to avoid it, and when and how lifestyle creep might be a good thing. Yes, you read that correctly: in some cases, lifestyle creep may be quite valid. In the interests of providing a little balance, there’s a section down the page about how lifestyle creep can be well worth it in some cases.

What Is Lifestyle Creep?

Lifestyle creep occurs when our standard of living improves to become more expensive as our income rises. This usually occurs as our career progresses. Soon after we get that long-awaited pay-rise or promotion, what we might have once seen as luxuries start slowly and steadily becoming life’s necessities.

In other words, as we start to generate more income, it becomes easier to “creep” towards spending more without really noticing. Since we have more income at our disposal, expensive temptations might arouse our interest. This might be to reward ourselves for our hard work, and in part, it might be because of those around us:

‘Keeping up with the Joneses’ is one phrase commonly used to describe keeping up with friends, colleagues, and neighbours. Maybe our friends drag us along to more expensive hobbies, or maybe we see friends and colleagues on social media living what looks like a luxurious life.
A spouse might encourage us to splash out a little more, maybe even on them!
Society might expect us to spend more based on our status or occupation.
Even gender expectations can play a role. Men might commonly be expected to lavish gifts or expensive dates on a spouse (or potential spouse) while women could feel pressure to spend on accessories such as handbags, or on experiences to post on social media.

What Is the Problem with Lifestyle Creep?

If you’re asking questions like, “what’s the problem? Isn’t the point of earning more to live a little more? I worked hard for this promotion, why can’t I enjoy it?” In many situations you could be right.

But before we explore that, let’s consider some of the issues with lifestyle creep.

Here is an extract from the famous book “The millionaire next door”, which was written after extensive research was conducted on self-made millionaires:

“Another reason very well-educated people tend to lag behind on the wealth scale has to do with the status ascribed to them [expected] by society. Doctors, as well as others with advanced degrees, are expected to pay their parts… Many people tell us that you can judge a book by its cover, meaning that high grade doctors, lawyers, accountants, and so on are expected to live in expensive homes. they are also expected to dress and drive in a style congruent [consistent] with their ability to perform their professional duties… Many professionals have told us that they must look successful to convince their customers/clients that they are.”

This book was followed by a sequel called “The next millionaire next door” which expanded on this further:

“Often, physicians’ median net worth [the total value of all investments and assets the doctor holds, less the debts they owe] is negative, due in most part to their student loans and age, but there is something else at play: the adherence to the stereotype of physician status.

What’s especially challenging is when our neighbours, friends, friends of friends through social media, and co-workers are hyper-consumers.”

But lifestyle creep doesn’t just impact people earning high incomes. While exact numbers vary by study or survey, multiple sources from 2021 to 2024 indicate between 40 and 56 percent of New Zealanders live payday to payday, in other words spending all that they earn each pay cycle.

Examples of Lifestyle Creep

Here are a few practical ways that lifestyle creep might begin to take hold:

Frequently buying new clothes, and perhaps more luxurious clothes.
Upgrading your car to something more luxurious (and more often).
Spending more at the grocery store without a budget in mind.
Frequently spending on services such as UberEats.
Dining out or heading out for drinks more regularly and at more expensive locations.
Upgrading your flight to premium seating.
Buying more expensive accessories such as jewellery, handbags, and watches.
Taking more expensive holidays.
Buying or renting a pricier home or apartment. Often this comes with a series of flow-on costs, such as higher power bills, council rates, insurance, and so on. You might even find in a larger household there’s more reason to buy more furniture and decorations, potentially rarely used rooms!
Purchasing more “toys” than you reasonably need, such as multiple cars and boats.

Many of these examples could be relatively small in isolation but can soon start to build up to more extravagant lifestyle purchases, because after a while, you might become used to having nicer things or more luxuries. It becomes normal, so you can’t imagine living without your current ways of spending.

You might not notice that “the creep” is upon you until your finances are in shambles, you are back living payday to payday, or worse, are in debt to fund your more extravagant lifestyle.

How To Fix Lifestyle Creep

Here are six quick-fire ways to avoid lifestyle creep. Or read on to see when lifestyle creep may be a valid lifestyle choice.

1. Live Within Your Means

Same house, same smartphone, same car. This is most-often how the financially free build their wealth, then keep it.

Particularly during the wealth creation stage, those who end up financially free don’t drive the newest cars, have the latest gadgets, or live in mansions. They’re frugal, and it pays off in the long-run when they commonly end up with more wealth than they know what to do with. The wealthy don’t start to upgrade their lifestyles until they have reached their version of a very comfortable buffer. This could be when any number of criteria are met, for instance:

When a certain amount is set aside,
Living in a mortgage-free home,
When financial planning for retirement is well on track, and there’s plenty of regular income to spare,
When there’s a certain level of passive income, or
When they’re fully retired.

Whatever the threshold, the longer you avoid lifestyle creep, the better off you’ll be.

2. Remember What Really Matters

You don’t have to adopt a “no spending” lifestyle. It’s normal to want to treat yourself for all your hard work. The trick is to do it deliberately. There's a difference between responsible and irresponsible spending. Will the latest brand of smartphone, which is remarkably like the previous version though with a marginally better camera, really make your life better? Probably not.

The short-term happiness boost provided by buying a new item like a phone will soon fade and your finances won’t look so hot, even if you’re making more income than you did before.

Instead of focussing on nebulous spending, think of what really matters to you – and set yourself to achieving it!

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3. Plan For Increases in Income and Limit the Growth of Your Expenses

If you get a promotion and go from making $85,000 a year to $105,000, you need to make sure you are ready with a plan when the larger sums hit your account. If you leave that extra cash sitting in your bank, it will practically beg you to spend it. Two simple alternatives are:

Repay debt, or
Invest towards something that really matters.

One rule of thumb is to save 75% of every increase in salary or pay, until you can save at least 20% of your annual income. In our $80,000 example, you’d want to save $15,000, since that’s 75% of the raise amount of $20,000. Spending the extra $5,000 a year is okay. (For the sake of simplicity, we’ve left income tax out of this example, though of course you’d be working with after-tax figures).

4. Focus On Yourself

Focus on yourself. Don’t let others’ opinions worry you or define you or your wealth by your lifestyle or what you have. True wealth is having the choices, freedom, and even a sense of security to do as you please.

Part of focussing on you might include the next step, your circle.

5. Surround Yourself with Friends Who Understand

Avoiding lifestyle creep can be tough if you’re surrounded by people who think nothing of pricey bar tabs, luxury cars, and planning the next ski trip.

This doesn’t mean you can’t hang out with wealthier friends or even family members, or just those who want to spend like they’re wealthy! But be clear about where you stand. That includes turning down invites to go to restaurants or expensive outings you don’t want to afford.

Be prepared to suggest more budget-friendly choices or politely say not this time. Some of the best activities with friends and family are low or no-cost anyway. Going to the beach, having a barbeque, picnics, going somewhere new, and even sightseeing near where you live might be a good start. If you’re unsure, simply Google suggestions near you for low or no-cost activities.

Real friends will understand and won’t make you feel bad for skipping expensive events. Remember, most of those who are financially free have managed to avoid lifestyle creep and the “keeping up with the Joneses” mentality that’s especially prevalent on social media with our friends, and friends of friends.

6. Spreadsheet It

If you are already deep in lifestyle creep, write out your expenses on a spreadsheet, or use a budgeting app or website. As well as all your random spending and payments, be mindful to include things that occur irregularly such as vehicle maintenance, holidays, and even replacing whiteware.

Seeing this all together, and the totals across a year, can be an eye-opening experience. It can help you catch where you overspend, what you need to cutback, and keep on a much better track with your money. This can add some extra accountability to your finances.

It might also help you identify what really matters, and what you think is well worth your expenditure!

When Lifestyle Creep is A Good Thing

If you’ve read this far, chances are you’re already financially motivated. You might be the kind of person who sets goals, tracks spending, and understands compound returns better than most. In other words, you’re probably not in danger of “accidentally” upgrading your life beyond your means. For you, a little lifestyle creep might not be such a bad thing after all.

The truth is that money is only as valuable as what it allows you to do.

If you’ve already laid solid financial foundations; cleared debt, built investments, and have a plan that shows you’re ahead of where you need to be, then loosening the reins a little could be entirely appropriate. After all, the point of financial security isn’t to hoard every dollar; it’s to give yourself the freedom to enjoy life on your own terms.

A touch of lifestyle creep can even be healthy. It’s often a natural reflection of progress. You’ve worked hard, your skills have grown, your income has risen, and your lifestyle evolves to match. A better car, a nicer home, or an occasional long weekend in Queenstown might not be signs of waste, but rather of reward. Enjoying the fruits of your labour can motivate you to keep earning more, improving yourself, and contributing more value to others.

There’s also a practical limit to how much you can save. Your saving power is capped, but your earning power is theoretically infinite. So, if a little lifestyle inflation encourages you to reach for the next promotion, start a side business, or invest in yourself, that “creep” is working in your favour.

And let’s not forget, as far as we know, you only get one life. No one wants to be the wealthiest person in the graveyard. If you’re 40 and spend $2,000 on a family ski trip today, that experience may bring far greater joy and lifelong memories than watching that same $2,000 compound into $8,000 to be spent in your late 60s when the kids have long since left home. Time, after all, compounds too, just in a different way.

Finally, cutting out the daily latte won’t make you rich, but it might make you miserable. If your financial house is in order, then a bit of thoughtful indulgence isn’t lifestyle creep, it’s lifestyle balance. And that’s a sign not of losing control, but of having earned it.

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The Bottom Line: Lifestyle Creep

At the end of the day, lifestyle creep isn’t the villain, it’s just a side effect of progress.

The key is intent. If you’re spending more because you’ve mindlessly upgraded every aspect of your life to match your income, that’s a problem. But if your extra spending reflects conscious choices, aligned with your values and your financial plan, then it’s not “creep” at all.

It’s growth.

Money, after all, is only useful when it’s put to work, whether that’s building your financial freedom or funding the moments that make life meaningful right now. The goal isn’t to spend less or more; it’s to spend well. So go ahead, buy the nicer wine, plan that family trip, or upgrade the sofa that’s older than your first job. Just make sure those choices fit within a life you’ve designed, not one that’s quietly designing you.