The Upgrade Trap
Why lifestyle inflation sabotages wealth building (Belief #1).
When I started learning about financial independence, the mechanics seemed remarkably simple: earn money, spend less than you earn, and invest the difference. I thought, why weren’t we taught this?
Instead, we’re taught the opposite: earn money, spend on the best lifestyle you can afford, then upgrade when your income grows.
It isn’t poor math skills that hold us back—it’s money beliefs we never consciously subscribed to.
This is the first in a series where I’ll explore a few of the misguided money beliefs that sabotage our ability to build wealth.
Belief #1: Your lifestyle should grow with your income.
Nicer homes, nicer cars, nicer vacations—some or all of these often get a boost in our 30s and 40s. On the surface it seems innocuous and almost ridiculous to question. Isn’t the point of hard work to give our families the best we can?
Of course, improvements don’t have to cost anything. But here I’m referring to lifestyle upgrades that impact your regular expenses—primarily housing and transportation, but also new ongoing costs like an expensive hobby or switching to organic groceries.
Lifestyle inflation can be a threat to our financial wellness for three reasons:
1. Lifestyle upgrades are sticky. Once you upgrade on something, you rarely downgrade;
2. Hedonic adaption and social comparison. We get used to our new baseline remarkably fast. It’s just a matter of time before we look for what comes next; and
3. Opportunity cost. Every decision to put your money towards one thing is an implicit decision not to put it towards something else, such as your wealth building.
I’m not saying never upgrade your lifestyle. We recently decided to hire monthly housekeeping that will cost us about $120/month. I know it will be sticky, it sets a new baseline (especially for me!), and it has an opportunity cost. But after running the numbers we decided the time and mental energy it frees up is worth the cost.
There’s no question that lifestyle upgrades can bring real value to our lives. My goal is not to eliminate them, but to encourage choosing them intentionally and being honest about the tradeoffs.
Lifestyle upgrades are sticky
Let’s say we have a friend, Joe, who gets a raise at work that increases his take home annual pay by about $800 a month. He decides to upgrade to an SUV, even though his sedan is already paid off, still meets his needs, and is running fine. He opts for a Toyota RAV4, financing $37,000 at 6% interest over 72 months. At roughly $600/month, he’ll pay back about $43,200 over 6 years—over $6,000 in interest alone.
Joe can afford this expense with his $800 raise. But here’s what we rarely talk about: we work hard to increase the gap between earnings and expenses, then immediately wipe it out with lifestyle updates. In Joe’s case, 75% of his raise immediately vanished into the car payment.
The reason it’s called lifestyle inflation is because it raises our cost of living in a way that’s hard to reverse. This isn’t about a single decision to upgrade your car once; it’s the underlying pattern of elevating your gadgets, your cars, your living situation. These decisions tend to be sticky. It’s rare for people to purposely trim down on their living conditions. When they do, it’s usually because of unexpected changes that completely shift household finances (e.g., divorce, layoffs) or because they are intentionally downsizing in retirement.
By and large, people are rarely willing to reverse lifestyle upgrades.
Hedonic adaptation and social comparison
Let’s go back to Joe’s beautiful RAV4 for a moment. Joe is now two years into payments and just got another promotion. His partner has also started a new job with a significant pay increase. They’re now looking at a combined 30% earnings increase!
They’ve been saving up for their wedding and a down payment on a home, but with these raises, they’re thinking it might be time to make a move out of their condo and find their forever home. The 2-bedroom condo is still technically enough space, but they’re planning on growing their family over the next few years and will eventually want more space anyway. They start attending open houses just to see what’s out there, and low and behold their real estate agent finds what seems like a bargain deal in a dream neighbourhood. It’s at the top of their budget and the house will need some work, but for the neighbourhood, it seems like a steal.
After they move in and the novelty of the change starts to wear off, Joe notices that their house looks like it’s the most outdated on their block. He starts to wonder whether they could find a way to start some of the renovations ahead of schedule. They have the wedding costs on the horizon, but maybe they can make it work. He also notices something else (Joe is very observant!)—this neighbourhood is full of Teslas and Mercedes Benzes! His almost new RAV4 doesn’t seem so sparkly anymore. He’s starting to consider trading it in before it depreciates further.
What Joe’s story tells us is that every lifestyle upgrade sets a new baseline for your household. This is what’s called hedonic adaptation—the idea that we get accustomed to improvements in our lives relatively quickly, so they stop feeling special and just become our new normal. We may then seek out a new, more impressive normal.
Hedonic adaptation is amplified by our tendency to compare ourselves to others. Joe was excited about his new pristine neighbourhood but now feels like they don’t fit in unless they up their game (again).
This is human nature. We compare ourselves “upward” to those who seem better off, which can either motivate us to improve or lead us to despair. Before we know it, we’re on the metaphorical hedonic treadmill: we look to those who are better off, feel motivated to reach a new level, quickly adapt, and repeat the cycle over and over again. Social media supercharges this effect by normalizing the unattainable and leaving us feeling like we’re always falling short.
You might think you don’t care what others think, but at our core, we’re social creatures who want to belong. When my husband and I put an indefinite hold on buying a house back in 2023, it was the social cost of not “keeping up” that stung the most—a classic case of “upward” comparison. We don’t like admitting we’re susceptible to FOMO, but most of us are.
Everything has an opportunity cost
Stepping back to Joe’s original decision to purchase a new RAV4, what would have happened if Joe had invested the $600 car payment monthly in the stock market instead? If we assume a modest 6% return over the 72 months, that investment could have reasonably grown to $51,845.
But here’s the kicker: if Joe had actually invested that $600/month in a globally diversified stock portfolio over the last 6 years, the real numbers show he wouldn’t have gotten 6%—he would have gotten closer to 12%, turning his investment into $70,063 instead of $51,845. 1
That’s opportunity cost. It’s the hidden cost of our choices: when you upgrade your lifestyle, you are implicitly giving up putting that money towards something else, such as wealth building assets.
I won’t go into Joe’s opportunity cost of increasing his mortgage before he really needed to, but you get the picture. These upgrades are sticky, there’s always something more lavish to aspire to, and most of us never bother to calculate the opportunity cost.
Does this mean that Joe should never ever buy a new car or bigger house or nicer anything? Of course not. But might it have served him to consider the tradeoffs when deciding on the timing for these large, consequential purchases? Maybe.
How to get a grip on lifestyle inflation
1. Avoid it in the first place or at least slow down. As obvious as it sounds, avoiding lifestyle inflation in the first place can be monumental for your financial wellbeing. Even slowing down upgrades gives you significant breathing room. For Joe, this might have meant using the raise to save up to buy a pre-owned RAV4 outright.
Before any significant upgrade, ask yourself: Am I comfortable adding this expense indefinitely? Could I downgrade if needed? How quickly? With purchases like houses, reversing course can take significant time and effort.
2. Set some boundaries ahead of time. In Just Keep Buying, Nick Maggiulli suggests a simple rule for managing raises: save about 50% of every raise and spend the rest, allowing you to enjoy some lifestyle growth without delaying your long-term financial goals.
I like that this approach encourages a compromise and having a simple plan for your pay increases ahead of time. But keep in mind that it assumes you’re already saving and investing and have no high-interest debt. If you’re carrying 20%+ credit card debt, you’d be wise to use any extra income toward wiping that out. If your savings rate is currently 0%, you might consider saving more than 50% of that raise. In that case, a one-time splurge on a fine dining experience to celebrate the raise is far more desirable than getting yourself into another fixed, regular cost.
The point is less on the 50% as an exact figure and more on the principle: avoid having your lifestyle rise as fast as your income.
3. Run the numbers. A major pitfall is considering new expenses based on whether you can afford the monthly payment. This kind of thinking ignores two key things.
First, it ignores the true total cost of owning this item. If it’s a car, it’s not just the car payment, but how much will the insurance go up? Will your gas bill go up? Is it particularly costly to replace parts if needed? If it’s a house, beyond the mortgage, have you factored in insurance, property taxes, 1-2% of its value in maintenance expenses per year, renovations, new furniture, lawn care, etc.?
Second, what is the opportunity cost? Use a compound interest calculator and plug in the numbers. How much could you earn if you invested the money instead? Assuming a 6% return is quite reasonable, if not conservative.
The answers to these questions shouldn’t lead you to never spend, but to always spend on what you truly value.
Using your gap to fund a bigger lifestyle slows down your wealth building engine, often by more than you realize. But it also hurts your breathing room when the unexpected hits. Its moments like that—such as the inflation we saw during the COVID-19 pandemic—where having that breathing room becomes invaluable. Beyond an emergency fund, it’s what allows you to absorb higher costs to meet true needs without everything else falling apart.
Lifestyle inflation is a choice, not a requirement. But knowing this doesn’t make it easy to simply ignore beliefs that are deeply ingrained. Resisting the pull to follow the herd takes practice and intention.
If there’s one takeaway, it’s this: above all else, protect your gap. It does more for your financial well-being and your peace of mind than any upgrade ever will.
Welcome to The Money Rewrite. My name is Mariajosé, and I write for first-generation wealth builders who are redefining success, navigating social and cultural expectations, and trying to build a life that feels good on their own terms. Subscribe for weekly essays and let me know what you thought about this post.
1 Calculated using Portfolio Visualizer to simulate monthly investments in VEQT (Vanguard all-equity ETF) between March 2020-March 2026.