How to avoid lifestyle inflation

We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.

How to avoid lifestyle inflation

This article is being presented in partnership with the Society of Grownups.


You've likely heard the adage about keeping up with the Joneses. Jealousy can make you do some crazy things (like buying that sports car you can't really afford), but sometimes the culprit of an uptick in spending is you.

Lifestyle inflation happens when your spending on non-essentials increases (and maybe even starts to outpace your income) without you intentionally choosing to spend more.

Learn how it happens and how to get it under control so you can make sure you're spending money in ways that align with your values.

When lifestyle inflation strikes

Lifestyle inflation can happen at any time, but there are certain milestones when you may be particularly vulnerable to unnoticed increases in spending habits.

1. You begin earning more money.

This can happen when you graduate college and get your first "real" job, or when you get a promotion at work or a new gig with a bigger paycheck.

It's natural for your spending habits to increase as you earn more money. The key is to make sure it isn't happening on autopilot, and that you're spending money on things you really value.

2. You move to a new city.

If you move to a more expensive area, your spending may increase on necessities like rent and food.

3. You pass a relationship milestone.

Moving in with a significant other, getting married and other relationship milestones can be joyous occasions. But they can also come with a lot of temptation to increase spending on things like a nicer home, dinner dates or fun vacations. Just remember to keep an eye on your spending plan.

4. Becoming a parent.

While you'll likely have to change your spending habits at this point in your life, it can be easy to get swept up by the big and sometimes scary changes ahead. Take a step back and evaluate whether owning a top-of-the-line stroller is important to you as a parent.

How to combat lifestyle inflation

Here are my three best tips for preventing lifestyle inflation.

1. Know your numbers.

Do you know how much you earn, spend and save? Understanding these three core numbers can help keep you in check and prevent you from spending more than you earn.

Also pay attention to the amount of money you're spending relative to your take-home pay (the amount that actually hits your bank account each month) and savings over time.

2. Have a vision.

When you experience a change in your income or expenses, it's important to take a step back and think about the kind of life you want to live. Decide what you value most -- like traveling or buying a home -- and what you are willing to give up in order to get there. Being realistic about these trade-offs can help you avoid debt.

3. Look at the bottom line.

If you take a new job or get a raise at work, remember that the number you see upfront isn't the number you'll see on your paystub. A $6,000 raise probably doesn't mean you'll get an extra $500 a month in your account.

After taxes, that number could decrease as much as 30 percent. Do the math and make sure you understand exactly what you'll bring home. Then go back to step two (your vision) and decide where to put your money.

What if I'm already suffering from lifestyle inflation?

If you're already suffering lifestyle inflation, acknowledging the issue is the first step toward fixing it. Consider taking a good, hard look at your spending patterns. Identify any areas of your budget where you could cut back a little, ideally in places where it won't feel as painful to you.

Perhaps you're eating out every day of the week, but wouldn't mind cooking at home on weeknights. Or maybe you've been spending more money on clothes than you realized and could rein that in without feeling deprived. It's up to you to find places where you're spending money in a way that isn't well-aligned with your values.

If you find that making these small changes still doesn't bring your lifestyle back in line, you may need to address larger areas of your budget. Consider renting a cheaper apartment or giving up your car to make use of public transportation.

What to do with the 'extra' money

Having extra money isn't a problem everyone has had. But if you do find yourself earning more money each month, it's a good idea to consider putting that money toward your long-term goals.

If you have debt, such as student loans, think about putting money from a raise toward increasing your payments. Try using a loan repayment calculator to look at how much more quickly you might be able to pay off your debt if you put an extra $50 or $100 toward it each month.

If you have multiple types of debt -- for example, student loan and credit card debt -- maybe you decide to put your money toward paying off the smallest one first. This method is known as the "snowball method," and the sense of accomplishment you may receive for paying down your debt can help you tackle other, larger debts.

Alternatively, you could look at which of your debts has the highest interest and put any extra money you save toward that one first. Remember, you'll still have to keep paying the minimum every month on each of your debts.

With any extra money that comes your way, you could also increase your retirement plan contributions or set up an automatic increase in savings.

Bottom line

If your earnings increase and you've paid off your debt, there's nothing wrong with increasing your quality of life. Lifestyle inflation only becomes a problem when you either find yourself living beyond your means or spending money in a way that doesn't ultimately make you feel satisfied.

Reflecting on your financial values can help you ensure the way you're allocating money brings you as much happiness as possible.

About the author: Karen Carr obtained her CFP® and worked as an adviser at a boutique, private wealth management firm before joining Society of Grownups. She came to Society of Grownups because of her passion for working with young professionals, who have their own unique opportunities and challenges. She believes financial planning doesn't have to be intimidating, and it's definitely not one-size-fits-all. There are many paths you can take to reach your goals.

About Society of Grownups: Society of Grownups is a learning initiative, created by MassMutual, that is dedicated to fostering financial literacy among twenty- and thirty-somethings. It is a place, online and offline, where people can go to talk openly about money and to learn, from both professionals and one another, about things like negotiating salary, buying a home, planning for a family, and saving for retirement. Offerings in the space include classes, chats, supper clubs, events and one-on-one sessions with Certified Financial Planner™ professionals.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Comment on this Article

Write your comment:
Enter Your Comments