Lifestyle Inflation: How to Stop Living It?

Published 4:37 pm Thursday, October 19, 2023

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A higher income is one of the best ways to reach your financial goals. It helps you save for a big purchase or retirement, pay off your debt, or all of these. However, it also prompts higher spending, causing you to indulge in the so-called “lifestyle inflation.”

Lifestyle inflation, also called lifestyle creep, is the phenomenon of increasing expenses as income increases. The problem is that when this happens, spending increases so gradually that it’s unnoticeable, causing derailed money management.

Its consequences include living paycheck to paycheck, making minimum payments on credit cards, and lacking cash resources to fall back on when unexpected financial setbacks happen. To prevent these from happening, here are ways to fend off lifestyle inflation. 

Monitor Expenses

Track your monthly spending and spending patterns, ideally every day throughout the month. This helps you maintain control of your finances, identify and eliminate wasteful spending habits, and promote better financial habits, such as saving and investing.

First, take stock of all your finances, including checking accounts, credit cards, and e-banks. This helps you know how much your cash inflows (money earned) and cash outflows (money spent) each month. Once aware of your cash flow, it’ll be easier for you to make a budget that aligns with your financial goals. 

Second, take inventory of expenses. Then, sort them into “needs” and “wants.” This helps you understand which expenses you can deduct or remove and which you can’t, and whether you can still cut costs to make room for more important financial goals. Besides automating spending decisions, categorizing your expenses can save you time and money on income tax preparation.


Once you have a good idea of current spending, make—or revisit—your budget and always stick to it. As you probably already know, this puts you on a more stable financial footing for both the day-to-day and the long term.

In your budget, it should cover all of your fixed essentials, non-essentials, and savings for emergencies and the future. Note that these, alongside your income and priorities, will change over time; so revisit your budget regularly, ideally once a quarter. 

When creating a budget, calculate your monthly income first. Pick a suitable budgeting method based on realistic goals before making a plan. Ensure to adjust expenses to avoid overspending and have money to put toward your goals. 

Pay off Debt

Prioritize paying down debts and other outstanding liabilities. When you’re debt-free or at least with lower debt, your cash flow will greatly improve. This then helps you set aside more funds for your savings, investments, and even wants in the future.

Refinancing can also help pay off your other debts faster. While it’s another loan, it helps you get a lower monthly payment and interest rate. If you’re worried about your credit score, opt for borrower-friendly financing, such as CreditNinja low credit options

Another option is debt consolidation. It’s the same as refinancing a loan, but you’re refinancing multiple loans into one. Its main benefit is to accrue less interest than individual loans would, so it’s recommended if you have several high-interest loans. 

However, think twice about debt consolidation if you haven’t addressed the underlying issue that led to your current debts, such as overspending. Paying down multiple liabilities with it isn’t an excuse to accumulate balances again. Even worse, it’ll only lead to more financial problems.

Build Savings and Emergency Funds 

Always set aside a portion of your income for your savings, especially if you have travel or investment goals. It always helps you to be more financially steady and independent. If you find it hard to save, consider automating your savings. 

It’s also recommended to save up for big purchases instead of using credit. Their low payments often trick us into believing we’re financially safe, but in reality, you’re paying more due to the accrued high interest. 

In addition to savings, set up an emergency fund. It’ll serve as a buffer against increased spending caused by lifestyle upgrades and a financial cushion against unplanned expenses or financial emergencies, as the name suggests.

Final Thoughts 

Lifestyle inflation happens when your monthly spending increases as your salary increases. While it makes sense to spend more if you earn more, it prevents wealth-building and causes financial strain in the long run. 

To avoid these pitfalls, Always be intentional when making a budget, financial goals, and purchases. More importantly, prioritize debt, savings, and emergency funds over financial upgrades.