Avoiding Lifestyle Inflation: Strategies to Keep Your Spending in Check

Where does all the money go? Even when we budget, sometimes our personal spending seems to get out ahead of us. There’s a term for it: Lifestyle inflation.1 Lifestyle inflation, sometimes known as lifestyle creep, refers to the tendency of individuals to increase their spending as their income rises. It’s a natural thing to want to experience the financial benefits of your hard work in the near term – that family vacation, that shopping spree, that night out on the town. But unchecked lifestyle inflation can lead to financial instability and prevent you from reaching your long-term financial goals. Don’t panic – you can still enjoy yourself. But I have a few thoughts about how to keep your lifestyle inflation in check.

Create a Budget: And then live within it. This is basically the bedrock of all financial wellness. Establishing a budget obviously includes paying your bills, but it should also be reflective of your financial goals and priorities. So, what does that look like? Well, it means you first allocate your income towards essentials like housing, food, and transportation– those are the essentials. Then, you look at what you have left and allocate it towards savings, investing, and discretionary spending categories. Saving and investing should come before discretionary spending. I’m a big believer in “paying yourself first,” and putting money aside – essentially rendering it “unspendable”—is how you do that. Make sure you regularly track your expenses to stay on track.

Live Below Your Means: This is really the cornerstone of building your financial foundation. Instead of spending up to your income level, strive to live below your means. Practically speaking, this means resisting the urge to increase your spending every time you receive a raise or bonus. It’s easier said than done, I know. But delaying short-term gratification in service of longer-term goals can be rewarding in itself. Aim to continue to save and invest a portion of your income at whatever level you can after tackling your essentials versus spending it on ephemera. And remember, all progress is incremental.

Automate Your Savings: This is usually the easiest step of all. Most banks allow you to set up automatic transfers to your savings and investment accounts each month. This way, you don’t even have to think about it, or be tempted to spend the money on a whim. If you treat your savings as a non-negotiable expense, just like your rent or utilities, the money is off limits for discretionary spending. Again, pay yourself first.

Practice Gratitude: This might seem like a softer strategy, but cultivating a mindset of gratitude for what you have, rather than constantly chasing more, has been shown to be an effective strategy to ward off spending unnecessarily.2 Focus on experiences and relationships that bring you joy, rather than material possessions. Practicing gratitude can help reduce the desire for unnecessary spending due to momentary triggers like competing within your friend group or impulse buying. Keeping your gratitude top of mind is the key.

By implementing these strategies, you can be more aware of lifestyle inflation, how it can impact your financial health in the near and long-term, and actively work to avoid it. By maintaining a healthy balance around how you enjoy your income today, you can help to secure your financial future for tomorrow.

If you’d like to discuss these or other financial concerns, a talk to a financial advisor. You can reach out a Beirne advisor today.

1 "Lifestyle Inflation: What It Is, How It Works, and Examples," by Will Kenton, Investopedia, February 26, 2024

2  "How Gratitude Can Help You Spend Less," by Jacki Lam, myFICO, December 6, 2023