8 Sneaky Signs That Lifestyle Inflation Is Delaying Your Financial Freedom

Lifestyle inflation is your spending increases as your salary increases. It tends to become greater each time you get a raise, and such behaviour can make it difficult for you to reach your financial goals.

Lifestyle inflation, also known as lifestyle creep, is when you progressively spend more as your income increases. The scary part is - you probably won’t notice it unless you’re the kind that scrutinises your bank statements every month and sticks to your budget 90% of the time. Not only did the pay raise not help you reach your financial goals faster with the higher disposable income on hand, instead it slows you down.

Most of the time, individuals who suffer from this affliction have bad spending habits and thrive on instant gratification as a source of happiness for material goods. However, when it comes to working towards the big-picture goal of financial stability, it may seem even more difficult to achieve.

Are you exhibiting any, if not all of these signs of lifestyle inflation? If you do, it’s time to kick these habits ASAP and cultivate some healthy money habits.

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1. If you think earning a high income guarantees financial success

For the uninitiated, having a fat paycheck at the end of each month may seem like your life is set towards being financially free. However, a high income isn’t a one-way ticket to being wealthy. It boils down to how you choose to spend your money and where you park your money to make it grow.

There is no doubt that drawing a high salary is a good start towards financial freedom and it gives you the head start of having a higher disposable income to work with. But having the right mindset is even more important. 

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2. If you believe having more money means you can spend more

Having more money gives you the freedom to do more things with it. You can either choose to accumulate your wealth by pumping money into investments or high-interest savings accounts or choose to increase your expenditure on material goods and expensive meals.

If you belong to the latter, it could be a telltale that your lifestyle inflation is standing in the way of your financial freedom. While you can take advantage of the extra money to build your wealth, you’re essentially “wasting” the increase in salary without contributing more to your savings and accelerating your wealth accumulation journey.

It’s important to take control over expenditure. Go back to the basics by differentiating between your needs and wants. Are you buying that Louis Vuitton bag because you really need it, or is there a cheaper and more practical way to reward yourself for your hard work such as booking a pampering massage? 

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3. When you’re used to instant gratification

This doesn’t really only apply to lifestyle inflation, but a mindset like this is not optimal if you’re striving toward financial freedom.

One way to find out is to track your spending over a week on a spreadsheet or on your phone. Are you buying things on impulse? Do you tend to get something without thinking too much about the cost? It doesn’t have to be luxury goods you’re spending on, it all boils down to making purchases just so you can feel the instant rush of endorphins, even if it’s just temporary.

While our brains thrive on “instant rewards”, delayed gratification can bring forward long term happiness. So instead of overspending on luxury goods, consider other ways of making your money work harder. You don’t need to totally abstain from them but instead be more selective and curate your indulgences.

Prioritisation is key. Just like eating clean takes discipline to sustain, building wealth takes conscious effort and time. 

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4. If “keeping up with appearances” is important

As we age, it seems like the emphasis on branded goods is becoming more and more prevalent. With a decent paycheck, you might feel the pressure to uphold an image where you’re donned in luxury items, whether you can afford it or not.

After all, with social media being our number one source of entertainment, we are constantly bombarded with images of the “rich” life. So there could be more pressure to spend and keep up with appearances.

But what benefits does this behaviour actually bring? It’s okay to spend every now and then to reward yourself or invest in a quality piece. But if financial freedom is your ultimate goal, maybe you’re better off putting your money elsewhere to let it grow. Always spend in moderation, and buy things that will benefit you and your quality of life, not for your social media.

5. If you’re not interested to learn how the wealthy manage their finances

Some of the best role models are those who have achieved what you want. Take Warren Buffet, Elon Musk, and Jeff Bezos as examples. Just how did they reach their successes? They must have started somewhere to get to where they are today. More importantly, understanding the context and rationale could be helpful in adapting those learnings into your own wealth-building journey. 

You can find inspiration from savvy investors and look out for how they manage their money. For example, Warren Buffett’s most famous piece of advice is “Rule No 1: Never lose money. Rule No. 2: Never forget rule No.1”. He also advises people to “work on building positive money habits, and breaking those that hurt your wallet”.

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6. If you’re only money-rich

Being wealthy doesn’t just encompass being money-rich. It also factors in your assets and total net worth, as well as being sufficiently covered by insurance as unforeseen medical expenses could easily wipe out your savings.

Having six digits in your bank account now may be extremely valuable, but once you take into account inflation each year, your cash will only lose value as time goes on. But that being said, you shouldn’t make all your cash illiquid.

Emergency funds are no doubt important. It provides you with a safety net to tide through unexpected financial situations that may arise, like a sudden retrenchment, the onset of an illness or the need for an urgent sabbatical. But leaving all your money in a savings account isn’t going to do much, regardless of how high the interest rate is.

Consider expanding your investment portfolio by allocating some money into safe investment vehicles, and others into high-yield investments to strike a balance and diversify your portfolio. Give your money a chance to work harder for you to achieve your financial goals quicker.

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7. If you’re living paycheck to paycheck

If you find yourself living paycheck to paycheck despite getting a pay raise, take a closer look at what you’re spending the excess amount on. This should be one of the easiest telltale signs that you are spending way above your means.

If you’re genuinely clueless about what you’re spending per month, consider downloading an expense tracker or budgeting app so you know exactly where your money is going. Though it might take a while to get used to noting down every single expense, it can help you identify which spending category you can cut down on, and which categories you might need to increase your budget for.

Once you’ve identified the areas where you're blowing your budget, make a conscious effort to cut down whenever possible. Need extra help? Here are some ideas on how you can maximise savings on your day-to-day expenses.

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8. If you’re still not checking off your financial goals

Though you got a raise, the inertia to get out of debt, save for retirement or beef up your investment portfolio could seem even greater than before. You’re either spending more because of your pay raise, or you’re not making a conscious effort to pump more money into your wealth accumulation vehicles.

If you are seeing this pattern, it’s best to break the cycle early. Allocate a portion of your salary to go towards these financial goals. If you don’t do it now, you will never do it in the future. Depending on your situation, it could be more helpful to read up or sit down with a financial advisor who can guide you on your goals before deciding on the next steps.

Final words

If you recognise any of the signs, consider adjusting your perspective, perhaps by projecting a couple of years down the road. Would you see yourself leading the same lifestyle or something better? If it’s the latter, then now’s the time to start working towards your goals. 

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