How to fight lifestyle creep with a higher income

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Ever imagined winning the lottery? Like most of us, you’ve probably dreamt up a variety of ways you’d enjoy a more extravagant lifestyle—lavish trips, a big house and an expensive car (or several of each). It’s not hard to get carried away fantasizing about how you could have it all.

While not nearly on the same level, when you get a raise or switch to a higher-paying job, you may begin imagining all the new and exciting ways you can spend that extra money. Although some celebration is in order any time you hit an income goal, overextending that higher pay in a not-so-responsible way could hurt you in the long run. Even if your purchases aren’t flashy or over the top, incremental spending differences can add up over time.

“Lifestyle creep” or “lifestyle inflation” is a term for when someone increases their expenses and standard of living to match an increasing income. While enjoying the benefits that your higher income affords can provide some degree of immediate satisfaction, it may prevent you from using it more responsibly for things like building a healthy emergency fund or investing in long-term wealth.

More money, more spending

Lifestyle creep doesn’t just affect both low- and high-income people alike, it can happen whether you suddenly triple your income or start getting an extra $75 per paycheck. In fact, even some millionaires live paycheck to paycheck because they’ve increased their “normal” expenses and taken on debt to finance their lifestyle. 

This can happen quickly if you buy a large home or a luxury car, and are suddenly stuck with higher mortgage payments, property taxes, insurance rates, and maintenance costs. Not to mention, the move to a larger home may prompt even further high-end spending as you try to “keep up with the Joneses”.

Likewise, even if your new increase in income isn’t necessarily substantial, spending that extra cash from the get-go on more meals out, a new gym membership, or the first vacation of many can make it harder to remember how you lived without those things before.

How to fight lifestyle creep

Taking the opposite approach to lifestyle creep can leave you happier and wealthier in the long run. If you can keep your expenses low while your income rises, you’ll be building your overall net worth and helping set yourself up for long-term financial success.

Set priorities and goals

Determining your priorities and goals before you start spending any new income can help reframe your decision-making process and avoid the feeling of deprivation with regard to what you can’t do or buy. Capture these priorities and goals in a document or spreadsheet, and revisit them at least once a year to keep yourself on track.

Whether you’re at the grocery store debating whether to buy gourmet cheese or shopping for a new car and considering an upgrade to leather seating, ask yourself how your purchases align with your goals.

Remove temptation

If you generally have trouble resisting the urge to spend more, look for a way to eliminate the temptation altogether by putting your money to work first.

One method is to allocate half of your income increase to either savings or paying off debt (or both). That way, you still get to enjoy spending some of your raise however you want, while prioritizing the rest of it for future financial stability. 

Likewise, if your employer offers a retirement account, you could increase your contribution rate. If you don’t have an employer-sponsored plan, you can set up a larger automatic transfer from your checking account to a high-yield Varo Savings Account. In either scenario, automatically (and immediately) putting some of your extra money aside each paycheck helps avoid the temptation of using it.

Or, if you’re currently paying off high-interest debt, increase the amount or frequency of your regular payments. There’s nothing quite like the satisfying feeling of seeing a loan or credit card balance diminish or, better yet, reach 0.

Be content

Most folks have experienced the rough patches of life when you have to make every dollar stretch. A pay increase can quickly change your circumstances, but it’s worth asking yourself “does it have to change everything?”. It may sound a little minimalist for your tastes, but staying grounded and happy with what you already have is at the core of fighting lifestyle creep.

Remember, the things that brought you joy before you started making more money can still bring you joy. It could be the generic brand cereal you like, cheap wine and movie dates at home with friends, the opportunity to listen to podcasts on the bus during your commute, or the rush of finding a steal at a local thrift shop. Resist the urge to buy more expensive things just because your bank account has a little more padding—if it’s been working for you, there’s no need to stop.

While fighting lifestyle creep may involve some restrictions, remember that a higher income can support your financial goals while still allowing for a few luxuries. Like we said before, celebrating your accomplishments is important, but it’s also beneficial to find the right balance between spending and saving your newfound cash flow.

Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.