Lifestyle Inflation: The silent thief in your paycheck

Three, like everything else, lifestyle creep is being shaped by comparison and peer pressure, not just comfort and happiness. Peer pressure today is digitised and ever-present. Scrolling through Instagram or LinkedIn can make it feel like everyone else is earning more, living better, and upgrading faster. Where in the non-digital world, peer pressure existed within the immediate circle that you physically met, today that exposure has no boundaries. From friends living in different countries to celebrities, everyone is showcasing a lifestyle that may seem desirable and attractive. Even if financially stable, constant exposure to others' curated lives can stir restlessness, leading to further lifestyle creep, to keep up. 

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Recognising the Creep

What's tricky about lifestyle creep is that it often starts out really small, feels normal, deserved, and even inevitable, yet is not at all like reckless spending. You're choosing upgraded versions of what you already use. Yet, as expenses inflate, savings often stagnate, leading to a paycheck-to-paycheck existence without realising it. And this often goes unnoticed until a major expense or a sudden loss of income forces the shocking realisation.

Multiple early warning signs can be red flags suggesting lifestyle creep. For example, your savings rate hasn't changed despite an increase in income, or you've stopped tracking your spending or budgeting, assuming you earn enough. Your credit card balances go up, or you rely more on "Buy Now Pay Later" schemes. Subscriptions, dining out and premium services may have become routine rather than occasional. You might find yourself spending more to match others or feeling socially behind, and using spending as a way to catch up. You find yourself justifying new and expensive purchases with "I deserve this" or "You only live once". Recognising lifestyle creep isn't about guilt or panic; it's about getting clarity, pausing and stocktaking. The earlier you do this, the easier it is to course-correct, if you need it.

Almost "Irreversible" Creeps

There are certain types of lifestyle creeps which could be quite difficult to reverse. One particularly difficult-to-reverse aspect of lifestyle creep pertains to children's schooling choices. Opting for expensive schools isn't just about the tuition fees; these institutions often demand a complementary lifestyle. This can include pressure for elaborate vacations so children have stories to share after school holidays, fancy birthday parties for your children and the expectation of thoughtful (and often expensive) gifts for other children's birthday parties. These subtle pressures create a financial commitment that extends far beyond the core educational expenses, which can be burdensome enough. What makes it especially challenging to reverse is the emotional and social cost of removing a child from a school once they're settled. The fear of disrupting their friendships, academic continuity, and perceived social standing can keep families locked into a lifestyle they can no longer afford comfortably. 

A similar trap lies in housing choices. Moving into a more upscale neighbourhood to be closer to such schools or to match a perceived social standard often brings higher EMIs, maintenance costs, and social expectations, making it equally hard to step back without feeling a sense of loss or perceived failure.

A Practical Approach to Control Lifestyle Creep

Controlling lifestyle creep does not mean dropping all additional expenses and practising austerity. It means regaining control and being more purposeful about the path to a secured financial future. A practical approach can involve several easy-to-implement steps. One, budget by setting a baseline for expenses that aligns with your values and income, rather than just social expectations. Earning more doesn't have to mean spending more. Creating a budget and sticking to it as closely as possible is a great start. Second, automate your savings: each time income increases, set up automatic transfers to savings or investments, paying your future self before lifestyle absorbs the difference. Spend what's left after investing, not save what's left after spending. Third, track and audit your expenses regularly to identify recurring costs, such as streaming services, subscriptions, and luxury purchases that have slipped into default mode. Getting a clear understanding of your income, expenses, and savings is a great way to control financial creep. Finally, realise and internalise that success isn't something that is just visible on the outside. The real flex is in finding financial stability, peace, autonomy and flexibility.

Make Your Lifestyle a Tool, Not a Trap

Financial creep is often justified by the YOLO (You Only Live Once) mindset. To some extent, it's true, especially after experiencing threats like the pandemic, constant world conflicts and overall uncertainty. Life isn't and shouldn't be solely about saving or planning; enjoyment and happiness are vital. However, YOLO doesn't equate to reckless spending beyond one's means. It's about being aware of your financial situation and limitations, choosing what genuinely matters and not allowing external noise to dictate your decisions. The objective isn't to strip away comfort or pleasure, but to avoid becoming trapped in a lifestyle that's difficult to sustain when circumstances change.

Sonal Chinchwadkar-Shrotriya is a knowledge management, learning, and communications expert specialising in financial services, consulting for a global financial and multilateral institution.

Rohan Chinchwadkar is an Assistant Professor (Finance, Entrepreneurship) at IIT Bombay.