Lifestyle inflation: how it could be sabotaging your savings 

Written by
Faith Archer
Insurance expert
Last Updated
23 MARCH 2022
5 min read
Share article

Ever wondered why you never seem to have enough money, even though you get a decent salary and regular pay rises? You could be suffering from lifestyle inflation. 

What is lifestyle inflation? 

It starts innocently enough. Maybe when you were a student or started your first job, you were only scraping by, with little left after covering essential bills. 

But as your income perked up, so did your spending. 

Bit by bit you could afford little extras: takeaway coffee, new clothes, the odd meal out, a weekend away. 

All these are examples of lifestyle inflation, trading up on everything as you hit higher income brackets. 

Lifestyle inflation is the reason even city slickers can be strapped for cash, struggling to support mega-mortgages, nannies, school fees and first-class flights to the Caribbean. 

Whether you’re buying treats because you “deserve” them, or forking out for car financing to keep up with the Joneses’ four-wheel drive, it can leave little over. 

What was once “nice to have” becomes essential, and your increased spending swells to consume your salary and even drive up debt. 

If you spend all your disposable income right now, you won’t have anything left come retirement 

How can lifestyle inflation sabotage your savings? 

Now, buying like billy-ho isn’t necessarily a bad thing. The trouble is that money can only be spent once. 

As any millennial will tell you, skipping an avocado toast won’t mean you can instantly afford a house. 

But every scented candle or fancy watch leaves less towards your dream holiday or home. 

If you spend all your disposable income right now, you won’t have anything left come retirement. In fact, you might not be able to afford to retire at all. 

Set up a standing order to a savings account straight after pay day

After years of interviewing rich people, author Thomas C. Corley found that many grew their wealth by refraining from buying unnecessary luxuries, and investing their spare money instead. 

He reckoned they lived by the saying “same house, same spouse, same car”. 

How to deal with your next pay rise 

If you get a pay rise, pause before mentally splashing the lot. 

Tot up how much money you’ll pocket each month, after allowing for fun stuff like income tax, National Insurance contributions, pension deductions and any student loan payments. 

Make a conscious decision about what you’d like to spend, and what you’d like to save. 

Then act fast, before you get used to the extra cash. 

You could consider upping your pension payments, especially if your employer will match additional contributions. 

Few of us would turn down a Christmas bonus, so think carefully before you pass up any extra cash from the company in terms of pension contributions. 

Pay yourself first and set up a standing order to a savings account straight after pay day, so you won’t be tempted by money languishing in your current account. 

If you reckon you can leave anything extra untouched for at least five years, many experts suggest that you feed money into the stock market, to boost your financial future. But, bear in mind, investing in the stock market is risky and you could lose money and get back less than you invested as the returns can go down as well as up. You should speak to a financial adviser if you’re unsure. 

By treating saving like bills, you’ll protect your new-found wealth, and you won’t be able to fritter the cash away because once it’s been transferred you can’t spend it elsewhere. 

How to prevent lifestyle inflation in future 

If you want to stop sabotaging your long-term savings, think about what you really want out of life. 

By setting clear financial goals, you may find it easier to divert your income towards them. 

Stashing cash and avoiding lifestyle creep can help you shed debt worries, sleep better and secure your financial future. 

Fundamentally, buying stuff won’t change who you are

Small daily habits can dig a big dent in your bank balance. 

If you track your spending, you can then review habits such as picking up a chocolate bar with your paper and free up extra funds. 

If you download a budgeting app such as Yolt or MoneyDashboard, you can set budgets for different categories, and get nudges if your spending goes over the limit. 

Being good with money doesn’t have to be horrible 

Always remember that you need to find a balance between spending and saving. 

Life isn’t worth living if you reject all opportunities and you're sat shivering in a corner eating baked beans. 

So, work out what makes you happy. 

Focus on enjoying the stuff that costs the least, and you may be less tempted to spend. 

Look for cheaper alternatives, such as borrowing books on a library app rather than shelling out for new publications. Swap a pricey gym subscription for decent running shoes. 

Consider investing in experiences that generate great memories, such as travel, concerts and classes, rather than endless consumption. 

Fundamentally, buying stuff won’t change who you are. 

You’ll still be the same person, just with smaller bank balance, when you could be funding your dreams instead. 

3 things to do right now...

A lot of people say they can’t save because they don’t have any cash left at the end of the month, so always pay some money into your savings accounts and investment products by standing order each month when you pay your bills. 

Make the most of your money by checking for best-buy savings accounts and stashing some cash. If you’re not sure how much you can afford, consider using one of the automatic savings apps which set aside small sums each week. 

Download a money management app which analyses your spending. 

Please share this with someone who'd benefit from it.

Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.