Earning more but saving less? It might be lifestyle creep.
Whether it’s a pay rise, a promotion or a loan you’ve finally paid off, extra money has a way of quietly disappearing into everyday spending. Over time, that can stop you from reaching your financial goals.
And many Australians may have less wiggle room than they think. Between March 2019 and March 2026, real wages (what your pay is worth once inflation is taken into account) fell 4.8%. Over the same period, real discretionary spending per person rose 0.7%, which is essentially flat.
In other words, people have held onto their lifestyle even though their pay buys less than it did before COVID. So when a pay rise does come along, it can feel like extra money to spend, even if it’s really just helping you catch up.
Find out what lifestyle creep is and how to avoid it.
What is lifestyle creep?
Lifestyle creep is when the amount you spend on non-essentials increases as your income does. This extra money might come from a pay rise, a bonus or lower costs. For example, you might have paid off a loan or cancelled subscriptions. The money you were putting towards these then becomes ‘spare’ cash.
Lifestyle creep can be so gradual that you don’t even realise what’s happening. It might start with the latest gadget when you score a pay rise, and before you know it, you’ve upgraded your car. And it’s not just big expenses like a new car or boat. It could be smaller things like buying more expensive bottles of wine, eating out more often or going from one streaming service to three. All these little extra expenses can start to add up.
That doesn’t mean every upgrade is a bad thing. Spending more on better health insurance, a safer car or something that genuinely saves you time can be money well spent. The problem is when spending rises by default, without you deciding it’s worth it.
Why does lifestyle creep happen?
Lifestyle creep rarely comes down to a single decision. A few common factors can make it easier to spend more without noticing:
- Social pressure: When friends, family or colleagues upgrade their homes, cars or holidays, it can feel natural to keep up.
- Social media: A constant stream of advertising and other people’s purchases and experiences can shift your sense of what’s ‘normal’ to spend.
- Easy payments: Tap-and-go, saved card details and one-click checkouts make spending feel less real than handing over cash.
- Buy now, pay later and credit: Splitting purchases into instalments can make bigger items feel more affordable than they are.
- Feeling you’ve earned it: After a promotion or a tough year, it’s tempting to reward yourself, and one-off treats can quietly become regular habits.
Signs you might be experiencing lifestyle creep
Because it happens gradually, lifestyle creep can be hard to spot. You might be affected if:
- Your income has gone up over the past few years, but your savings balance hasn’t.
- You still feel stretched at the end of each pay cycle, even after a pay rise.
- Your credit card or buy now, pay later balances are growing, or taking longer to pay off.
- Things that used to be occasional treats, like takeaway or taxis, are now part of your regular week.
- You’re paying for subscriptions or memberships you rarely use.
- You can’t easily say where your last pay rise went.
If a few of these sound familiar, it may be time to take a closer look at your spending.
The potential cost of lifestyle creep
Spending your extra income on non-essential items means there’s less money going towards your emergency fund, retirement savings, investments or even your mortgage. In the long term, this has the potential to cost you thousands.
Let’s say, for example, you have a $600,000 home loan at the average variable rate of 6.84% over 30 years, and your minimum monthly repayments are $3,928. A year into the loan, you get a pay rise that leaves you with an extra $200 a month after tax. Put that extra money into your mortgage each month and Canstar research shows you’d save $133,000 in interest and shave four years and one month off the term of your loan.
Or let’s say you invest that $200 a month and earn 7% a year on average after fees. After 10 years, you’d have $34,617 stashed away. Keep in mind that investment returns aren’t guaranteed and can go down as well as up, and this example doesn’t account for tax on your earnings.
Paying down your mortgage and investing aren’t the only options. Depending on your situation, you could also put your extra income towards:
- An offset account: Money in an offset account linked to your home loan reduces the interest you’re charged, while still being available if you need it.
- Your super: Salary sacrificing part of your pay into super means the money is taken out before it reaches your bank account, so you’re less likely to spend it. Contribution caps apply, so check how much you can contribute before setting this up.
- A high-interest savings account: Building an emergency fund gives you a buffer for unexpected costs, so you’re less likely to rely on credit.
How to avoid lifestyle creep
There are several strategies that can help you avoid becoming a victim of lifestyle creep. Here are seven tips:
1. Create a budget
Yes, this sounds basic, but having a budget – and sticking to it – is essential. It helps you plan how you spend your money and helps stop you from spending more than you should. Your budget doesn’t need to be complicated. Add up all your expenses and subtract them from your income to see how much you have available to save and spend each month.
2. Allow for splurges
Treating yourself every now and then is fine and may stop you from going overboard when you find yourself with a little extra cash. You can even build a ‘splurge’ fund into your budget and use that money only for indulgences.
3. Track your spending
One of the most effective ways to avoid lifestyle creep is to keep a close eye on your spending. Your bank’s app may even have a tracking function built in so you can see where your money is going. If not, there are other apps that can track your spending and categorise your payments so you can see where you’re spending the most.
4. Review your recurring costs
Subscriptions, memberships and bills can creep up without you noticing. Set a reminder to review them at least once a year. Cancel anything you no longer use, and shop around for better deals on things like insurance, energy and your phone plan. Any money you save can go straight towards your goals.
5. Set financial goals
Setting clear, specific goals about what you want to achieve can help you stay on track. You’re less likely to spend money on non-essentials if you’re focused on hitting your goals. Your goals might be geared towards saving a specific amount for a special purchase, or paying off a debt by a certain date. Either way, map out how you’re going to get there.
6. Automate your savings
Putting money towards your savings or investments should be a priority, not an afterthought. That’s why it’s important to pay yourself first. If you have worked out that you can save $100 from each pay, set up an automatic transfer to a separate account on payday.
7. Have a plan in place for pay rises
Think about what you’ll do next time you get a pay rise. Not having a plan makes it much easier for the extra money to get eaten up by everyday spending.
Start by checking whether your pay rise is a real increase. If your pay goes up by less than inflation (you can find the latest figures from the Australian Bureau of Statistics), your money will actually buy less than before. In that case, your pay rise may simply be helping you keep up with rising costs rather than giving you extra to spend.
If you do have genuinely extra money, you might choose to allocate a certain percentage towards saving or investing – for example, half of any pay rise – and add the remainder to your household budget.
The bottom line
Lifestyle creep isn’t about never treating yourself. It’s about making sure your spending reflects what you actually value, rather than rising automatically with every pay rise. With so many Australians’ pay buying less than it did a few years ago, being deliberate about where your money goes matters more than ever. A budget, a plan for your next pay rise and a few automated transfers can go a long way.
