Boost Your Income, Not Your Expenses: Smart Strategies to Combat Lifestyle Creep After a Pay Raise

Have you noticed how small spending choices can add up? Choosing to shop at a specialty farmers market instead of a discount grocery store is one example. It may seem harmless, but it can contribute to what’s known as lifestyle creep—the tendency to spend more as your income rises.

This trend can affect your financial stability down the road. Kalee Boisvert, a financial adviser, points out that people often aren’t aware of how their spending changes with their salary. Each time you get a pay raise, it can lead to more frequent splurges. What starts as a daily coffee habit can quickly escalate to luxury vacations and expensive car upgrades.

If you’re not careful, this lifestyle creep can create feelings of guilt. You might earn more but see little growth in your savings. Shannon Lee Simmons, founder of the New School of Finance, identifies a few triggers for lifestyle creep. They include significant pay raises, new job opportunities, or even the feeling of deprivation that leads to a “why not?” mindset.

Life changes, like having children, can also drive up costs. For instance, if your kids are going to summer camp, you might feel pressured to spend more just to keep up with others. This added spending often doesn’t reflect your true values, but rather a sense of obligation.

Simmons emphasizes that unnoticed daily expenses can hinder long-term savings. If you’re living paycheck to paycheck, you won’t have an emergency fund or extra savings for things like vacations or camps, leading you to rely on credit cards.

But not all aspects of lifestyle creep are negative. As you hit financial milestones, it’s okay to treat yourself. Spend on things that truly add value to your life, whether it’s organic groceries or a long-awaited trip.

To keep your spending in line with your goals, regular budget reviews are essential—especially during major life changes. This means looking closely at where your money goes. Simmons suggests examining your bank and credit card statements to pinpoint any unnecessary purchases. Sometimes, you’ll find that mindless shopping during lunch breaks adds up significantly.

It’s crucial to differentiate between lifestyle creep and rising costs of living. Just because expenses go up doesn’t mean your lifestyle has necessarily changed. Many Canadians experienced higher daily costs after the pandemic due to inflation, which may not be lifestyle creep but simply the cost of living.

To guard against lifestyle creep, try to treat salary increases as if they don’t exist. For example, if you start earning $300 more, act as if you’re still making your original salary. This approach can help you save that extra money without feeling deprived.

Boisvert recommends setting up automated transfers to your savings account. This not only helps you reach long-term goals but curbs impulsive spending. Ultimately, it’s about making conscious financial choices. You decide what’s important and where your money goes.