Lifestyle Inflation: A Major Side Effect of Making More Money

Lifestyle Inflation: A Major Side Effect of Making More Money | The Loaded Pig

More money, more problems. Falling into the trap of lifestyle inflation is not only costly, but it’s more common than you might think. It’s why you tend to increase your spending after your income increases. The good news is, you can avoid lifestyle inflation and get on track to saving more of your hard earned money so that you can achieve your real financial goals. 

What is Lifestyle Inflation?

Lifestyle inflation, also referred to as lifestyle creep, is our constant desire to spend more money, especially if we are making more money. It’s why we set our eyes on a bigger house, faster car, and new gadgets. Even once we have what we’ve been wanting, we soon find ourselves feeling the same desire for the next, new thing. You have fallen into lifestyle inflation if you find yourself thinking, “once I get this raise I can buy ____.” 

What causes Lifestyle Inflation?

The concept of hedonic adaptation or the hedonic treadmill has been written about by numerous people since at least the 1600s. The idea is that humans tend to return to a stable level of happiness after positive or negative life changes. It explains why lottery winners months later report feeling the same level of happiness as prior to winning or why you may feel similarly shortly after receiving a pay raise. 

Consumerism is behind this idea as well. Merriam-Webster defines consumerism as “a preoccupation with and an inclination toward the buying of consumer goods.” Consumerism has played a role in history for centuries, however in the United States it really came about after World War II. According to PBS, in the 1950s the American consumer was praised as a “patriotic citizen” and one who contributed to “the ultimate success of the American way of life.” 

As patriotism may have accelerated the consumerist society in America, advertising from large and small companies alike has certainly kept our eyes on the newest products and purchases to improve our lifestyle and spend more of our money.  

How to avoid Lifestyle Inflation?

Although it may seem like the social pressure of spending more money is impossible to escape, it all starts with you and your mindset. You can avoid lifestyle inflation by implementing a few strategies into your everyday life that help you change your mindset of money and get on track to saving more instead of spending more.

1. Practice Gratitude

By practicing gratitude regularly you can help cultivate contentment. Feeling content with your lifestyle can help you avoid lifestyle inflation and feel grateful for the situation you are currently in. Thus, gratitude can help you escape the constant hamster wheel of wanting more and spending more money. Learn more in our article, 6 Ways Practicing Gratitude Can Transform Your Finances.

2. Set Your Financial Goals

One method of ensuring you can achieve your financial goals, and any other kind of goals, is by creating SMART goals. SMART is an acronym for specific, measurable, achievable, relevant and time-limited goals. By creating goals using this method you are able to track your progress and measure your success. If you focus on achieving your financial goals, you can keep your eye on the finish line rather than get distracted by increasing your lifestyle.

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3. Understand Your Spending Habits

Take a look at your expenses for the last couple of months and categorize each one as a “want” or a “need.” Needs are things that you can’t live without, such as housing and food. On the flip side, take out food is probably something that could be categorized as a “want.” See how much of your income you’re spending on wants and what expenses could be attributed to lifestyle inflation. Find out about 3 simple budgeting techniques that can help you get your spending (and saving) under control with minimal effort.

4. Take on Weekly Money Challenges

We’ve come up with 9 money challenges to improve your finances in small ways. Try to do one money challenge each week and before you know it you will see the results in your piggy bank. Each week we also post a challenge on Twitter and Instagram that will help you improve your finances in small ways. Follow us for a weekly Loaded Challenge to help you save money, change your habits, and reach your financial goals sooner. 

5. Make A Plan When Your Income Increases

We recently increased our household income and do you know what we did? You probably guessed it…we added a new sheet to our finances spreadsheet! Instead of simply spending or saving all of our additional income, we made a plan. We allocated certain amounts to different financial goals and we will monitor our progress and adjust accordingly. 

6. Don’t Cut All “Wants” Out of Your Budget

If you decide to only spend your money on “needs” and paying off debt or saving for another goal, you may end up making some impulse purchases just because you aren’t allowing yourself to have any “wants.” Set aside a reasonable amount in your monthly budget for “wants.”

7. Set Up Sinking Funds For Large Purchases

A sinking fund is a method of saving small amounts of money on a monthly basis in order to save for a large purchase or financial goal in the future. Using sinking funds can help you avoid dramatic spending increases, such as for the holidays or when large yearly costs come around. Instead of shelling out hundreds or thousands of dollars in one month, you can save a small amount each month. If you set your heart on a large purchase, use a sinking fund to save for it each month instead of buying it on a whim.

8. Get An Accountability Partner

We are firm believers that having someone to help you stay on track is a great way to accelerate your progress toward your goals. This can be in the gym or when dealing with your finances. Ask your partner or a friend or family member about their financial goals and if yours are along the same lines, then be accountability partners! Talk regularly about your progress and challenges and help each other along the way with motivation. 

9. Do The Math for Large Purchases

Before you decide to buy a new car, house or even a dog, really take the time to see if you can afford it. Consider how much you have in your emergency fund if a stream of income is impacted and if you’ll be able to afford your expenses in the long-term. We do understand wanting to buy new things (we are human!), but do your best to calculate if you can afford large purchases before you buy them. 

Our Take

It’s hard to avoid making purchases just because you’re making more money. Even for us, we know all about lifestyle inflation and we still fall into the trap. The good thing with us is that we are each other’s accountability partner and we help keep the other in line…most of the time!

If you read our articles often, you know that we are very goal-oriented. So the best part of making more money in our eyes is getting closer to our financial goals. Whether that’s buying land in another state or paying off our mortgage early, increasing our income gets us to the finish line faster. Of course, that is as long as we don’t increase our lifestyle too much. 

Financial freedom begins with good habits.

Rebecca & Tiago,

Rebecca co-founded The Loaded Pig with the goal of helping people achieve their financial goals. Her passion for financial freedom has landed her on US News & World Report,, Cheapism, and many other sites. Rebecca earned her Master of Business Administration from the University of Florida and her Bachelor of Arts from the University of Miami. She is currently a professor in the business department at Broward College.