Key findings
Lifestyle changes occur when expenses increase faster than income.
While average wages rose 21.4% from January 2020 to January 2024, the personal savings rate plummeted 47.2%.
The percentage of households having trouble paying their bills increased from 35.7% in 2022 to 37.8% in 2023, according to the Consumer Financial Protection Bureau.
Careful budgeting, maintaining savings habits, and avoiding impulse purchases can help you avoid lifestyle changes and stay financially flexible.
Explaining lifestyle changes
Lifestyle creep, also known as “lifestyle creep,” is a term used to describe the rise in people's living standards and spending in response to rising incomes, which often leads to people remaining in the same financial situation despite their income increasing.
The phenomenon of lifestyle creep explains why some people continue to spend their money before payday, even after they get a raise or a new, higher-paying job.
This may be typical across the nation, as wages are soaring while spending is also rising and personal savings are declining, according to federal data.
US jobs and wages are rising, but savings are falling
As Americans recover from the lingering effects of the pandemic, some economic indicators are trending up. According to the U.S. Bureau of Labor Statistics, the unemployment rate fell significantly from a peak of 14.8% in April 2020 to 3.8% in March, a return to pre-pandemic levels, when the unemployment rate was 3.6% in January 2020.
Average wages have also improved significantly, increasing by 21.4% from January 2020 to January 2024. However, despite the relatively steady increase in average wages, personal savings rates remain lower than pre-pandemic levels.
In fact, the personal savings rate nearly halved from January 2020 to January 2024, from 7.2% to 4.4%, according to the U.S. Bureau of Economic Analysis.
As the federal government distributed stimulus checks, the personal savings rate saw an unusually steep increase from March 2020 to April 2021, with the savings rate peaking at 32% in April 2020. However, by February 2024, the personal savings rate had fallen to 3.6%, down 1.1 percentage points from the previous year.
Why it's hard for Americans to save money
Unravelling the complex mechanics of lifestyle change requires a closer look at the balance of income, expenses and savings that many Americans strive to achieve on a yearly, even monthly, basis.
Many Americans live paycheck to paycheck
In an unstable economic environment, a higher income gives you more flexibility. But historically high inflation rates have increased the number of families struggling to make ends meet. Dr. Roberts of Baylor University says that about 70% of all households run out of money before payday.
“Rising housing costs and rising food prices make it difficult to get by,” said Kennesaw State University's Dr. Ackert. “In addition, we must recognize that many Americans are struggling with student loan debt, credit card debt and medical bills.”
'Lifestyle changes' can be an obstacle to savings
Despite the financial impact of lifestyle changes, the temptation to adjust your life according to the money you earn often comes from the subconscious.
“Humans are very good at adjusting their expectations as circumstances change,” Roberts says. “We keep increasing our spending, but our happiness doesn't increase. We simply adapt to the status quo and strive for the next highest level of consumption.”
In his book Shiny Objects, Roberts calls this the “treadmill of consumption,” or TOC. “TOC argues that the more we buy, the more we don't get closer to happiness; we simply speed up the treadmill,” Roberts says. “At some point, our ability to keep up with the treadmill weakens, and without the handrails of healthy financial habits, we end up grasping for air.”
Lifestyle Creep Traps: Why They Happen
There is no single behavior that can keep you from falling into a lifestyle trap. There are many factors that can lead you to spend money on wants rather than needs.
It's human nature to “keep up with the Joneses”
Social media, especially, has made it easier than ever to compare our lives to what others portray. “In today's world, social media exacerbates this phenomenon. In a world where people share so much of their beliefs, attitudes and behaviors on social media, people are overwhelmed with a flood of information that is perceived as the norm,” says Dr. Pfeiffer of the University of New Hampshire. “This social comparison can lead to unrealistic expectations about one's life, leading people to spend more than they can afford,” he adds.
Present bias influences decision making
Managing money wisely often requires a delicate balance between immediate and delayed gratification. It can be the difference between saving $20 by eating lunch at home or enjoying a quick meal. “Most of us are willing to accept a small reward today when waiting could bring a larger reward in the future,” says Dr. Lucy Ackert. “Even when we know we should save for tomorrow, it's hard to resist the pleasures of current consumption.”
Credit products are prone to delays
Using a credit card to delay paying for goods and services can help you bridge the gap until payday. But a high credit limit can actually encourage careless spending. “I call credit cards 'spending facilitators,'” says Dr. Roberts. “When you can use credit instead of cash or check, you're more likely to buy more or spend more. Remember that?”
How to avoid the lifestyle inflation trap
Realizing you might be falling into a lifestyle inflation trap isn't a financial death sentence. Rather, it's a wake-up call to take action and prevent it in the future. Use the tips below to establish the financial guardrails you need to avoid lifestyle inflation.
Living on a budget
Nearly all financial advice starts with a budget, and there's a reason for that: “Saving 15% of your after-tax income is a good rule of thumb,” says Dr. Roberts. “Your mortgage payment shouldn't be more than 25% of your after-tax income. Maximize or at least match your company's 401(k) contributions.” Staying within your budget can help get you back on track to taking control of your finances.
Set up a deposit to do the work for you
Automate your savings by allocating a preferred amount into each account, ideally into one of your highest-yield savings accounts. “Save a little each month before your paycheck hits your checkbook and is likely spent,” says Dr. Roberts. “You'll be amazed at how quickly you get used to a 15% reduction in your take-home pay. Painless savings.”
Avoid impulse buying
While it may be tempting to treat yourself here and there, these are the perfect way to slip into a lifestyle change. “If we stop and think for a moment, we often realize that we should fight the initial urge to spend money today for instant gratification,” says Dr. Ackert. Think about what you want for at least 24 hours, and if you still want to make that purchase, check your budget to make sure you have enough funds.
Resist lifestyle changes and take care of your future self
The ultimate goal of avoiding lifestyle inflation is to protect yourself and your finances. “While the future seems far away, I encourage people to imagine that the future is just around the corner so they can make better financial decisions today,” said Dr. Ackert.
Saving for tomorrow may not be as wasteful as you think, but the benefits often far outweigh the one-time cost. “When you see how quickly your savings grow, you'll be more likely to save more,” says Dr. Roberts.
Methodology
To help readers better understand the financial environment and savings trends, we analyzed and cited data from federal government sources. We also leveraged interviews with financial experts to add perspective to these data. Additionally, our team asked these experts to offer financial strategies, giving readers the tools to navigate their personal financial situations and avoid succumbing to lifestyle inflation.
Our data sources include:
U.S. Bureau of Economic Analysis, Personal Savings Rate, 2003-2023 U.S. Bureau of Labor Statistics, Private Average Hourly Earnings for All Employees (seasonally adjusted) U.S. Bureau of Labor Statistics, Unemployment Rate (seasonally adjusted)
Our Experts
Lucy Ackert Professor of Finance, Michael J. Coles College of Business, Kennesaw State University Bruce Pfeiffer Associate Professor of Marketing, Peter T. Paul College of Business and Economics, University of New Hampshire
Banks, credit unions, and fintech companies we monitor
All America Bank, Alliant Credit Union, Ally Bank, Ameranto Bank, America First Credit Union, American Airlines Credit Union, American Express National Bank, Apple Bank, Arvest Bank, Associated Bank, Axos Bank, Banesco Bank, Bank of America, Bank of Hope, Bank Purely, Bank 5 Connect, Barclays, Banco Basque, BECU (Boeing Employees Credit Union), Bethpage Federal Credit Union, BMO, BMO Alto Bank, Bread Savings (formerly Comenity Direct), BrioDirect, Capital One Bank, CFG Bank, Charles Schwab, Charlie Financial, Chase Bank, Chime, CIBC USA, CIT Bank, Citibank, Citizens, Citizens Bank, Colorado Federal Savings Bank, Comerica Bank, Conexus Credit Union, Consumers Credit Union, Credit One Bank, Cross River Bank, Current, Customers Bank, Delta Community Credit Union, Discover Bank, East West Bank, Emigrant Direct, EverBank (formerly TIAA Bank), Federal Savings Bank, Fifth Third Bank, First Citizens Bank, First Internet Bank (Indiana), First National Bank of America, First Tech Federal Credit Union, FNBO Direct, Frost Bank, Golden 1 Credit Union, Heritage Bank NA, HSBC, Huntington Bank, KeyBank, Lafayette Federal Credit Union, Lake Michigan Credit Union, Lending Club, Limelight Bank, Live Oak Bank, Lone Star Bank, MY Safra Bank, M&T Bank, Marcus by Goldman Sachs, Mercury Bank, Merrick Bank, Michigan State University Federal Credit Union, Mili, Morgan Stanley Private Bank, Mountain America Credit Union, MyeBank, MySavings Direct, National Bank of Kansas City, Navy Federal Credit Union , NBKC Bank, North American Savings Bank (NASB), NorthPointe Bank, Patelco Credit Union, PenFed Credit Union (Pentagon Federal), PNC Bank, Popular Direct, Presidential Bank, Provident Bank, Quantic Bank, Quorum Federal Credit Union, Randolph Brooks Federal Credit Union, Regions Bank, Ridgewood Savings Bank, Rising Bank, Salem Five Direct, Sallie Mae Bank, Santander Bank, SchoolsFirst Federal Credit Union, Security Services Federal Credit Union, Service Credit Union, SoFi Bank, South State Bank, Spectrum Credit Union, Spring Bank, Star One Credit Union, Texas State Bank, Department of State Federal Credit Union, State Employees Credit Union, Suncoast Credit Union, Sutton Bank, Synchrony Bank, Synovus Bank, TD Bank of Texas, Texas Capital Bank, Third Federal Savings and Loan, Transportation Alliance Bank (TAB Bank), Truist Bank, US Bank, UFB Direct, Umpqua Bank, Upgrade, USAA Bank, USAlliance Financial, Valley National Bank, Baro Bank, Vio Bank, Vistar Credit Union, Webbank, Webster Bank, Wells Fargo, Western State Bank, Zions Bank, Jinro Bank
