Your Money Brain - #7: Lifestyle inflation - How small changes can erode your financial wellbeing.

You worked damned hard for that promotion or pay rise, sacrificed fun and family times to focus on your career, and are working more hours than ever before. So why does it feel like your bank balance isn’t growing as quickly as it should?

What Is Lifestyle Inflation?

Also known as lifestyle creep, lifestyle inflation occurs when an increase in income leads to a proportional increase in spending. Basically, we live to our means - the more we earn, the more we spend.

It often feels justified: you’re earning more, so why not upgrade your car, home, or daily coffee habit? After all, you deserve it. You can afford it. Can't you?

The issue lies in how these relatively small changes are repeated and compound over time, eroding the financial cushion you worked so hard to build.

Left unchecked, lifestyle inflation can:

• Limit your ability to save and invest for the future, because you've spent it all before you ever got around to investing it for the longer term.
• Increase financial stress by creating higher fixed expenses. If you get used to spending larger sums or making more frequent purchases, it's difficult to accept the need to cut back. Plus, if you've borrowed money to fund these - whether PCP/car finance, your mortgage for your house, or your credit card - committing yourself to repayments can cause bigger concerns when interest rates rise, or your income unexpectedly reduces.
• Mask the true cost of seemingly "small" decisions, like subscription services or dining out. You're spending so frequently that you've stopped paying attention to your accounts - you simply don't know what's going out. (You just know that it is!!)

The Emotional Drivers Behind Lifestyle Inflation

At its core, lifestyle inflation, or creep, isn’t just about numbers - it’s about emotions. The desire to "treat yourself" or signal success to others is often rooted in psychological and societal pressures:

• Comparison Culture: Seeing others with "more" can trigger a sense of inadequacy or competition. You feel that you won't be seen as successful if you're not keeping up with (or beating) your peers, your neighbours, or your social media connections.
• Reward Mechanisms: After working hard, spending feels like a deserved reward. And, as we've already mentioned, you've worked damned hard - so you SO deserve to spend a bit....don't you??
• Fear of Missing Out: The belief that enjoyment now is more valuable than planning for later. Just because it seems that everyone else is doing it, doesn't mean that it's necessary, appropriate or right for you to do it right now. The "buyers remorse" that follows a FOMO purchase is huge, and the crash that follows can be long lasting.

Breaking the Cycle

Don't panic. This isn't about giving up everything that you enjoy!

Avoiding lifestyle inflation doesn’t mean giving up on life and the things that make you genuinely happy. It’s about making intentional choices that align with your long-term goals so that you can afford to KEEP making happy financial decisions and purchases for the rest of your life!

Tips to Stay Aligned While Enjoying Life

1. Revisit Your "Why": What are your financial goals, and why do they matter? Use these to guide spending decisions.
2. Create Intentional "Upgrades": Celebrate milestones by choosing meaningful splurges that add lasting value to your life. Before you do this, though, explore what "adding lasting value to your life" looks like and means to you.
3. Automate Savings First: Pay yourself first by directing a portion of every pay rise into savings or investments before you go mad on spending for the rest of the month. You wouldn't dream of not paying your mobile phone bill - make your savings as much of a non-negotiable commitment as your mobile or broadband bill is.
4. Pause Before Purchases: Introduce a "cooling-off" period for major expenses to assess whether they truly enhance your life. If you can walk away, distract yourself, and do something different - you'll likely find that you don't go back for the thing that, just a few hours ago, was about to become yet another waste of your hard earned cash!
5. Track Hidden Costs: Small recurring expenses, like premium subscriptions or frequent dining out, add up quickly. Regularly audit your spending habits. Celebrate every time you shave a bit off your supermarket shop, walk to work instead of taking the car, or cancelling a TV subscription service that you realise you never have time to watch.

Your Money Brain Takeaway

The goal isn’t to avoid spending entirely - life is still for living, of course. It’s to ensure that today’s financial choices don’t compromise tomorrow’s freedom and security.

Recognising lifestyle inflation allows you to enjoy the present while securing your financial future. And THAT makes all your hard work and sacrifice well worth it!

Take a moment this week to reflect on how your spending habits have evolved. Are they aligned with your long-term goals? By staying mindful of lifestyle inflation, you can find the balance between living well today and building a sustainable, secure tomorrow.

About Kim Uzzell

Kim Uzzell is a Financial Psychologist and founder of The Financial Wellbeing Academy. With over 35 years in finance, primarily as a stockbroker and wealth manager, and over 20 years of trauma-informed coaching, Kim brings a unique approach to helping clients navigate their relationships with money.

Find out more

• Visit my website - Your Money Brain
• Join our free lunch & learn on this topic on 4th March (and register for future events)
• Download my free Money Brain Toolkit
• Visit the Financial Wellbeing Academy
• Book a consultation with Kim