Lifestyle inflation: The silent cost eating up your disposable income

How increasing your spending to match your rising salary can leave you feeling stuck, and what you could do to break the cycle.

When I first started working for myself, I packed up my things and moved into my grandmother’s garage conversion. I knew I’d feel comfortable freelancing if I reduced my outgoings to deal with the ebb and flow of work.

I felt more confident when things started to pick up, so I thought I could afford more freedom. I moved out and got my own place. I started paying rent and bills, bought furniture and had general household upkeep. I joined a fancier gym and shopped at a trendy supermarket, and my life became more expensive.

I saved less, and despite making more money, I had so much less of it. This is an example of lifestyle creep; plainly put, it's when your expenses increase as your salary increases. Lifestyle creep could be anything from eating out more, upgrading tech just because, moving into a nicer home or buying a fancier car with higher monthly payments.

Lifestyle inflation can hit us all if we’re not careful. Here are three stories about lifestyle inflation that show just how common it is:

"I got a graduate job when I first moved to London. At the time, I couldn’t imagine needing any more money than I earned. I had enough to save, rent a room with friends and go for the occasional drink. However, despite multiple salary increases, I noticed that the amount I was saving didn’t change, which was confusing.

The culprit in my case was rent, which doubled in the time I’d lived in London. There were also the holidays, food delivery apps and an expensive gym membership. These things contribute to my overall happiness so don’t feel frivolous. However, these aren’t things I needed to feel content five years ago.

With homeownership seemingly so far away, I struggle with balancing how much I should sacrifice and enjoy today."

Kemi

"I spent five years working at a non-profit on a charity salary. I was still living at my mum's, so my living expenses were relatively low while I was saving up to move out. I was focused and disciplined about saving the whole time, so when Covid hit, I’d saved up enough to buy a flat.

Around the same time, I moved to the private sector and received a significant pay bump, which gave me a lot more disposable income. I started spending more – be it clothes, furniture, tech and travel – to the point that I barely saved.

This continued for about three years until I lost my job and was out of work for six months. I only fully realised the extent of my situation when all the money I was surviving on during unemployment was the money I'd saved from when I was working in a non-profit organisation.

Now I’m back in a stable situation and earning more. Experiencing lifestyle inflation back then helped me focus on breaking that pattern."

Delroy

"Lifestyle inflation looked like several things to me. Moving out to live on my own, paying rent and then having a mortgage contributed to it. Additionally, I started building up hobbies like pole dancing to be more social. I've started competing in pole dance competitions and investing a lot more in my hobbies. I’m a trained accountant, so I keep track of how much I spend, which means I can't close my eyes to how much leaves my account every month.

Lifestyle inflation is crazy because I now spend more on my mortgage than my net salary from my first graduate job. I wouldn't say my experience of lifestyle creep is currently unsustainable; I’m just not saving as much as I'd like to. I'm saving less now than when I earned less money."

Rebekah

How to avoid lifestyle inflation

No doubt these are stories many can relate to, but fear not; although lifestyle inflation can feel inescapable, it doesn’t have to be. Here is how you can manage the creep:

Have a clear idea of your financial goals

What do you want to achieve regarding your savings, purchases and investments in the short, medium and long term? Having a clear idea of what you want from your finances will help give some perspective and allow you to spend more mindfully because you have a purpose. This also includes sticking to a budget and ensuring you are realistic about how much you can save and spend.

Automate your financial targets and adjust where necessary

Give yourself fewer opportunities to forget to save by removing the manual process. You can do this by setting up a standing order to have a percentage of your salary move from your current account to a savings account on payday.

It can be tempting to upgrade your lifestyle and start spending, but prioritise your savings.

Shop and spend mindfully

When it comes to buying new things, implement the 48-hour rule. This allows a two-day cooling-off period to give yourself time and space to consider whether you really need it. Set personal spending limits for yourself, for example, the maximum you’re willing to spend on anything, from a daily coffee to annual rent. Setting financial boundaries will help prevent you slipping into bad habits.

The most important goal for avoiding lifestyle creep is to try to live on your previous salary, where possible. Think about what's really necessary to upgrade and what can stay the same. If something doesn’t cause you harm or inconvenience, why change it?

Wanting to buy new things can turn into an infinite catalogue, so know what being content means to you.

Looking for somewhere to keep your savings? Bank with Chase and you can open a saver account. Start saving with as little as you like, and we’ll calculate your interest daily and pay it monthly.

18+, UK residents. A Chase current account is required to open a saver account.

Recommended reading

• Two things to do for future you
• How to recover from a financial setback
• The real costs of decamping to the coast or the country

Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial advice.