When earning more doesn’t mean getting ahead: the subtle trap of lifestyle creep
For many Australians, getting a pay rise or earning more money doesn’t feel like it used to. Despite promotions, pay rises, and bonuses, bank accounts aren’t growing the way we’d expect. Savings stall. Budgets still feel tight. So what’s going on?
One of the biggest culprits is something called lifestyle creep; the quiet, gradual increase in spending that tends to follow a rise in income. You earn more, so you spend a little more. And then a little more. Over time, that new spending becomes the norm and any financial progress you’d hoped to make gets eaten up without you even noticing.
This creeping lifestyle inflation is more relevant than ever, especially in Australia’s current economic climate. Let’s unpack what the data is telling us, why lifestyle creep happens, who’s most at risk, and how to stay in control without giving up the comforts you’ve earned.
Rising wages, but not rising wealth
On paper, wages are going up. The Wage Price Index rose 3.4% over the year to June 2025. But inflation has stuck around, especially in areas like housing, energy, and groceries, meaning real wages (what you can actually buy with your income) haven’t kept pace. In fact, some reports show real wages are still nearly 5% lower than before the pandemic.
Meanwhile, savings behaviour tells another story. Australia’s household saving ratio did tick up earlier this year, reaching 5.2% in Q1, but dropped again to just over 4% by Q2. Historically, that’s low. Past generations saved more of their income, while today, many Australians are spending a higher proportion just to keep up.
The costs of essentials are also rising. Survey data from universities like Monash show that spending on non-negotiables; groceries, housing, insurance, is taking up more of our income. What used to be occasional splurges, like dining out, ride shares and streaming services, have quietly become recurring expenses.
So even though you may technically be earning more, it may not feel like you’re getting ahead…because you’re not.
How lifestyle creep quietly sets in
Lifestyle creep doesn’t happen all at once. It’s slow and subtle, often masked by small upgrades: a better bottle of wine, more frequent takeaway, new clothes “because they were on sale,” or subscriptions you barely use. These don’t feel like luxuries in the moment, they feel deserved, especially if you’ve just gotten a pay rise or bonus.
Psychologically, we tend to anchor ourselves to new standards quickly. Once you’ve upgraded to a nicer apartment or bought a newer car, it becomes your new baseline. Downgrading feels like a step backward, even if the original version met your needs just fine. Over time, what was once a luxury becomes a necessity, and your budget stretches to accommodate it.
Social comparison also plays a role. On social media or in your social circles, it’s easy to feel like you’re falling behind if others are travelling, upgrading their homes, or driving more expensive cars. Without even realising it, you start matching those perceived lifestyles, even if they’re not financially sustainable for you.
Who’s most at risk of falling into the trap?
Some groups are more vulnerable than others. Early-career professionals often see large percentage increases in income in their first few years of working and may be tempted to immediately upgrade their lifestyle. High-income earners, paradoxically, can also fall into the trap, because their increased earning power gives them more room to spend without necessarily feeling the pinch.
Households with growing fixed costs, such as rising mortgage repayments, rent, or utility bills, are also at risk. When your baseline costs increase, it’s easy to justify spending more just to feel like you’re staying afloat. And for those reaching major life transitions, like paying off debts or having kids move out, newly freed-up income can quickly be absorbed by discretionary spending unless there’s a plan for it.
How to stay ahead without falling behind
Lifestyle creep isn’t something you need to avoid entirely, but it does need to be managed with intention. Here are a few practical strategies to help you enjoy your money without letting it erode your financial future:
- Automate your savings before you see the money: When you get a pay rise, set up automatic transfers into a high-interest savings account or investment fund, and speak to your financial adviser about making additional super contributions. Make saving the default, not the afterthought
- Be clear about what’s essential: Know your fixed and necessary expenses; mortgage, rent, insurance, and separate them from discretionary ones. Not every “upgrade” needs to happen immediately
- Track your spending regularly: Small increases add up. Use budgeting tools or apps (like ASIC’s MoneySmart) to review your statements and spot where lifestyle inflation might be sneaking in
- Set specific financial goals: Whether it’s a home deposit, early retirement, or travel fund, clear goals give your income a purpose, beyond just making life more comfortable today
- Delay big lifestyle upgrades: Wait 6-12 months after a pay rise before making large purchases. This gives you time to see how sustainable your new income really is, after taxes and any hidden costs
- Watch out for fixed-cost creep: These are the hardest to dial back. Be cautious about locking into higher rent, car loans, or subscriptions that commit you to long-term higher spending
- Use windfalls wisely: Bonuses, tax refunds, and inheritances are great opportunities to boost your financial position. Speak to your financial adviser about directing a large chunk toward savings, investments or super before spending any of it.
Lifestyle creep isn’t a moral failing. It’s a natural response to rising income and social cues, but if left unchecked, it can rob you of the financial freedom you’re actually working toward.
The key is to be intentional. You don’t have to deny yourself nice things, you just need to decide in advance how much of your income goes to enjoying today and how much goes to securing tomorrow. Because at the end of the day, the most expensive thing isn’t a new car or a weekend away, it’s the slow erosion of your financial potential, one upgrade at a time.
If you want to discuss strategies to help you achieve your goals, and to check in on your spending and budget, reach out to your financial adviser today.