Choosing to shop at a specialty farmers market over a discount grocery chain or taking a cab instead of public transit are some of the subtle ways your spending can climb as your income goes up.
Over time, these seemingly small choices can lead to something called lifestyle creep—when you tend to spend more as your income increases.
And it can hurt your financial resiliency in the future, experts say.
Kalee Boisvert, a financial adviser with Raymond James, says when people don’t have an awareness of what they spend versus what they earn, they can easily and quickly adjust their spending upward each time they get that salary bump.
“What may start as buying Starbucks every day instead of brewing your coffee at home can quickly lead to flying first class and a collection of designer bags and upgrading to a luxury vehicle,” she said.
If left unchecked, Boisvert said it could also bring a sense of guilt for not building your net worth despite the higher earnings.
Shannon Lee Simmons, founder of the New School of Finance, says there are a few triggers for lifestyle creep such as a significant salary raise, getting a new job that changes the household income or even constant deprivation that leads to the “whatever” attitude.
Major life changes such as having children can also raise living costs—and sometimes, lead to lifestyle creep, Simmons said.
For example, if all the kids are going to summer camp, you don’t want your kid to be left out, she said.
“You feel like you need to keep up and spend money on things that necessarily aren’t your values, but you do it anyway because there’s somebody else’s lifestyle on the line that you’re responsible for.”
While day-to-day expenses can go unnoticed at first, Simmons said people lose the ability to save money in the long term when stuck in a cycle of lifestyle creep.
“There’s no emergency fund, there’s no slush money, there’s none of that because (you’re) paycheque to paycheque,” she said, which impacts big-ticket spending plans such as summer camp or vacations that are then put on credit cards.
But lifestyle creep is not always bad.
As people reach financial milestones, they should be able to reward themselves with lifestyle upgrades, Boisvert said.
It’s important to spend money on things that bring value to your life, she added. That could mean spending on organic groceries or going on a long-anticipated trip.
“This isn’t about how you should spend your money,” she said. “It’s making sure that you’re aware of where it’s going … how does that feel? Or is there something you'd want to change?”
Boisvert suggested aligning your spending with your goals and values.
To keep lifestyle creep in check, frequent audits and reviews of your expenses are necessary, especially when there are big life changes.
That means looking at costs regularly, understanding where the money is going and budgeting.
Simmons suggested going through bank and credit card statements and highlighting purchases you don’t recall making.
For example, Simmons recalled a client who went through this exercise. It turns out, they would endlessly roam the mall and spend money during their lunch break.
“That means it was super mindless and I think, sometimes you see a trend,” she said.
Then, look critically at where you can cut back sustainably.
Simmons warned not to mix up lifestyle creep with adjustments to costs of living.
“Your life might cost more than it used to but that doesn’t mean you necessarily changed your lifestyle,” she said. “It’s just the literal cost of living has increased, as opposed to lifestyle creep.”
Many Canadians saw their daily expenses go up as inflation surged coming out of the pandemic.
Simmons said many had no choice but to adjust to higher prices, while lifestyle creep is all about choices.
One way to put a guardrail against lifestyle creep is to not let salary increases affect your spending, Simmons suggested.
“If your paycheque goes from $2,000 to $2,300, try to pretend that extra $300 doesn’t exist,” she said.
“If you just never give yourself a chance to spend it, you might actually find that you don’t miss it.”
Boisvert said setting up automated transfers into a savings account can also help work toward long-term goals and prevent impulse spending.
It comes down to making a choice, Boisvert said.
“We’re always faced with choices and you get to decide in those moments what’s important to you and where it goes,” she said.
