Broke even after a promotion? Here’s why

As people get used to higher levels of comfort or luxury, they quickly adapt and start to seek even higher levels of satisfaction, leading to continuous spending.

Written by Ishika Roy for The Indian Express, July 24, 2024, with inputs from Aparna M, AVP, PeakAlpha

Promotions often come with eagerly anticipated raises. As income increases, many people tend to increase their spending habits. If left unchecked, this can lead to reduced savings and even debt. Tonmoyee Kashyap, for instance, finds herself indulging in fancier foods like sushi and splurging on lifestyle and home decor items, with each promotion.

“By the end of the month, I cut down on ordering out, reduce my use of Blinkit and Instamart, and rarely go out. Sometimes, I lean on my closest friends if things get tough,” shared Kashyap, 24, a PR consultant. If this scenario sounds familiar, you may be experiencing lifestyle creep—a phenomenon that subtly integrates into your well-budgeted life without notice.

In simple words, lifestyle creep is what happens when your monthly expenses increase considerably as your income increases.

What leads to a lifestyle creep?

Pranay Aggarwal, an eminent sociologist, said that rising education and job opportunities are lifting people out of poverty, empowering them with greater spending power. Many assert their freedom by splurging, and soon, desires become wants, eventually becoming needs.

“People also experience relative deprivation,” Aggarwal explained, “where the perceived lack of certain possessions among peers motivates acquisition to avoid feeling left out.”

Nishtha Jain, counseling psychologist at LISSUN, said, “Lifestyle creep might enter our lives in harmless ways like spending when feeling strong emotions––positive or negative––or the lure of instant gratification through impulsive spending. She attributed this behavior to hedonic adaptation, where people quickly adjust to higher standards of living and continuously seek greater satisfaction.

“What once seemed like a luxury becomes a necessity over time. “People often view higher spending as a reward for their hard work. They anchor expectations to these new levels, making it challenging to revert to previous habits,” Jain said.

Moumita Das Lala, 31, working at a law firm, recounted a colloquial saying, “Jitni chadar ho utne hi paer phailao,” implying that one shouldn’t bite more than one can chew. She said wanting to spend more as they get paid more is a human tendency, and emphasised on the need of budgeting and saving.

What do they usually spend on?

Sandy Dasari, 24, said that following a recent salary increase, she has observed a tendency to allocate a significant portion of her disposable income towards the purchase of electronics, including smartphones and Macbooks along with investing in household furniture items, such as beds, mattresses, and sofa sets. She also said that her purchases were “often driven by the need to stay current with technological advancements and maintain productivity, both professionally and personally.”

Sonia Jakhwal, 29, said “80 per cent of her salary is spent within the first few days on celebrations, leaving only 20 per cent for the rest of the month.” This has led her to cut back on ordering in, socialising with friends, and other lavish expenditures.

Hemangi Mhaprolkar, a psychologist at Mpower, pointed out that young adults today, earning and exposed to various global influences through work or personal interests, often rely on technology and services rather than doing things themselves. “Some believe that spending more motivates them to earn more to enjoy greater benefits,” she added.

Is it the same as being a spendthrift?

Conspicuous consumption is a major driving factor behind such non-essential purchases, where people want to show their peers what they’ve purchased to garner respect and admiration. “Being a spendthrift differs slightly, as purchases aren’t motivated by self-image. However, with lifestyle creep, what you buy reflects how you want others to perceive you and the image you project to society,” explained Mhaprolkar. “This type of spending is more deliberate and intentional.”

“There is a stark change in the lifestyle that our grandparents and parents lived, what we live and what we see our children live. This is evident that we want to be better because we can afford to do so,” she said.

Mhaprolkar highlighted that lifestyle creep has become more prevalent due to factors such as social media exposure, e-commerce, increased earning potential, and the perception that money can procure anything.

How can you counter it?

“Automating your investments is a step forward for achieving financial freedom. Allocate a portion of your paycheck, as soon as it comes, to your investment portfolio. Investing money is always preferable to not doing so—it’s the simplest way to reclaim your time,” advised Aparna Mundani, CFA, associate vice-president at PeakAlpha Investments.

Mundani stressed on the importance of mindset over mere spending reduction: “Conscious and intentional spending habits are key to curbing unnecessary expenses. For impulse buys, consider letting items sit in your cart for a week before revisiting them, ensuring you truly need them,” she said.

“We often underestimate the small and big ticket purchases that usually go unaccounted for – gifts during holiday season, impromptu dates, impulse purchases during window shopping at the airport lounge or late night food deliveries. Keeping a tab on those and setting up a separate fund can help people plan their upcoming expenses accordingly,” said Mundani.