We’ve all been there. We see a friend or family member upgrade their car or home and think, “That’s what I want!” We get a raise and immediately think of ways we can improve our lifestyle with that extra money. Or maybe we’ve just given in to one too many impulse purchases.

Welcome to the lifestyle creep.

Chances are that your increased spending has happened in incremental amounts that might have snuck up on you. Unfortunately, they start adding up. The next thing you know you’re having a hard time financing even the day-to-day stuff, never mind making headway on future expenses like retirement and your kid’s college education.

Of course, the result of this is going into debt to try to keep up. Here are some startling statistics:

• As of 2022, 77% of American households report having some type of debt, and the average adult holds $58k of individual debt.
• According to GlobalData, Americans with a household income of less than $50,000 make up about 27 percent of regular luxury consumers.
• At the end of 2022, 3 million borrowers were behind on a credit card, according to New York Fed researchers. That compares to 15.8 million at the end of 2019.
• Families stuck living paycheck to paycheck are actually twice as likely to be solidly middle-class than low-income.

So, why do we do it?

There are several reasons why we might give in to the temptation to increase spending.

Trying to Keep Up

We all want to fit in with our peers, which is why we often feel the urge to spend more when our colleagues, friends, or family have an upgraded lifestyle. But chasing someone else’s standard of living can become a financial trap; we often earn more or less than the people around us OR we might choose to save more while they decide to spend more. Bottom line: You don’t know what’s going on in your friend’s bank account, so don’t try to keep up with it. They could be spending themselves into debt trying to finance that lifestyle.

We Deserve It

We’ve worked for years and have finally gotten that raise. Or maybe we’ve worked for years and haven’t gotten that raise, but we deserve some sort of reward for putting in so much effort. According to Investopedia, “A hallmark of lifestyle creep is a change in thinking and behavior that sees spending on nonessential items as a right rather than a choice. This can be seen in the spending decision attitude of “you deserve it,” rather than thinking of the opportunities that saving money would provide.”

We Think it Will Make Us Happier

It feels really good to drive off the lot in that new car. Really good. But eventually, that novelty wears off and we start looking for the next thing. We’re human – it happens. “This effect is the hedonic treadmill — a term psychologists use to describe the cycle of pursuing pleasure, adapting to it, and moving on to a new desire.”

Signs of the Lifestyle Creep

According to Business Insider, here are a few things you should watch out for before things get out of control:

1. Your savings is stagnant. “If the amount you are saving has remained static even after a few years of raises and bonuses at work, that is a sign that you are spending all of the extra money you are making each year,” says Robin Aiken. Not prioritizing saving can be disastrous for your overall financial health.
2. Your spending has increased in many (or most) areas of your life. If you notice that you’re spending more money in general because you feel like you can afford it, lifestyle creep may be a factor. You may eat out more often, buy pricier gifts, take more expensive vacations, and sign up for several new memberships.
3. You aren’t budgeting. It’s easy for lifestyle creep to take over when you don’t know where your money is going. If you don’t know how much money goes toward extra expenses each month, you can overspend without even realizing it.
4. You don’t feel in control of your finances. Maybe you’re stressed every time you check your bank account balance because you know you spent too much. Or you look at your dwindling savings or growing credit card balances with dread and regret. This sense might be telling you that your lifestyle is exceeding your income.

Improving your lifestyle isn’t something you have to avoid altogether – but it is something you should carefully consider. Again, you might be trying to keep up with others, but it’s possible their spending isn’t in line with their financial reality. Regardless, you need to keep your eyes on your own bank account.

When it comes to big purchases, it’s important to talk things through with your financial advisor to make sure that what you’re planning isn’t going to derail any future plans. You should also talk to your advisor when you get a raise, bonus, or inheritance to make sure you have a clear idea of what should be saved and what can be spent.

Just think of how amazing it would feel to purchase that new car, home, boat, whatever, knowing that you can afford it without stress.