How to use the lifestyle inflation calculator
- Enter your income a year and your spending a year today. Use take-home figures so that income minus spending is what you really keep.
- Choose whether your raise each year is a dollar amount or a percent, and enter it.
- Enter the share of each raise spent. At 60%, every $5,000 raise adds $3,000 to your spending and leaves $2,000 to save.
- Enter the number of years to look ahead. Read the savings rate today and in the last year, the total saved, and the table of income, spending and savings for each year, next to what you would have saved if spending stayed flat. Use Copy, Print or CSV.
Formula
Income in year n = income in year n-1 + raise (or x (1 + raise percent))
Spending in year n = spending in year n-1 + share spent x (income in year n - income in year n-1)
Saved in year n = income in year n - spending in year n
Saved if flat = income in year n - spending today
The saving given up is the total of "saved if flat" minus the total saved. It equals the share spent times the total growth in income over the years.
A $5,000 raise every year, 60% spent
Start with $60,000 of income and $48,000 of spending, so you save $12,000, a 20% savings rate. A $5,000 raise lifts income to $65,000. At 60% spent, spending rises by $3,000 to $51,000, and you save $14,000 instead of $17,000. Of the raise, $3,000 is spent and $2,000 is saved.
After five years income is $85,000 and spending is $63,000, so the year's saving is $22,000 and the savings rate is 25.9%. Over the five years you save $90,000, compared with $135,000 if all spending had stayed at $48,000. The gap of $45,000 is exactly 60% of the $75,000 of extra income earned over the five years.
What lifestyle inflation means
Lifestyle inflation, or lifestyle creep, is the habit of letting spending rise whenever income does. A better apartment, more dining out and nicer subscriptions can each be reasonable, but together they can leave you saving a smaller share of each raise than you expected. The effect is hard to see because each step feels small.
The table makes the trade explicit. A rising savings rate means that raises are being saved faster than they are spent. A flat or falling one means spending is keeping pace. Neither is right or wrong in itself, since spending on things you value is the point of earning money, but it helps to choose it on purpose.
Reading the result
The "saved if flat" column is a comparison, not a plan. It shows the extreme where every raise goes to savings. Most people land somewhere in between, and the share you enter lets you test different habits, such as spending half of each raise.
No investment growth, taxes or inflation are applied, so the numbers are simple sums. To see what saved money could become, use the compound interest calculator, and to see the value of starting earlier try the cost of waiting to invest calculator. The pay raise calculator helps you work out the size of a raise in the first place.
Assumptions and limits
- Income and spending are take-home amounts. Taxes and payroll deductions are not modeled.
- The same raise (or the same percent) is applied every year, and the same share of it is spent.
- Savings earn nothing in this table. No interest, investment growth or inflation is applied.
- The starting income, spending and share are examples to edit. They are not guidance on how much to spend.
Frequently asked questions
What is lifestyle creep?
Lifestyle creep is when your spending grows as your income grows, so a raise does not lead to a matching rise in savings. The term describes the pattern and is not a judgment of any particular purchase.
How do I figure out how much of a raise I spend?
Compare your spending before and after the raise and divide the increase by the size of the raise. If spending rose by $3,000 after a $5,000 raise, you spent 60% of it.
Why does my savings rate go up even when I spend most of each raise?
Because the part you save grows each year while the spending you already had stays the same. A higher share of a larger income is saved, so the rate rises more slowly than the amount saved.
Can I model a pay cut?
Set the raise to 0 and look at your current numbers, or enter a smaller income. This tool is built around growth, so for a cut use the pay cut calculator.