Appraisal season’s upon us, and it’s that time of the year where the arrival of the much awaited hike turns us into math geniuses, calculating every percentage increase with the precision of a sharpshooter. The numbers look good, your bank balance just got a bump. Yet, something doesn’t feel right. You got that much awaited raise, but it just doesn’t feel like one. 

The culprit? A silent money habit called lifestyle inflation.

What is Lifestyle Inflation?

Lifestyle inflation (also known as lifestyle creep) refers to the tendency to increase your spending as your income rises. It's often subtle - from a slightly higher rent, to a new subscription, or a premium upgrade here and there.

In fact, a 2023 study by PwC India and Perfios revealed a noticeable rise in discretionary spending across categories like electronics, travel, and dining out, even as many households dealt with inflationary pressures. The numbers show a clear trend: As income rises, so do discretionary expenses. Unfortunately, this means that a 20% salary increase often doesn’t translate to a 20% improvement in your overall financial freedom.

According to a 2023 Deloitte survey, the average salary hike in India was 9.1%, with top-performing employees getting 15–20%. While that sounds promising, the Ministry of Statistics and Programme Implementation reported that retail inflation in India hovered around 5.69% in December 2023. So, while your paycheck might look bigger, the real increase in financial freedom is often much smaller—especially if your spending habits upgrade the moment your income does.

Why Doesn’t a Raise Always Feel Like a Win?

Here’s the thing: most of us tend to take on new indulgences once a hike arrives. And that’s alright - to an extent. The problem arises when spending grows faster than savings or investments. If every rupee earned is already assigned to a new expense, then it leaves no room for savings, investment, or breathing space.
The result? A 20% hike feels like a 0% change in lifestyle quality.

How to Break the Cycle: A New Mindset for Your Raise

While lifestyle inflation is a natural process, there are ways to ensure that your raise leads to tangible financial improvement.

1. Pause before you upgrade:
   Take a beat before committing to a higher rent, new EMIs, or lifestyle upgrades. Ask yourself: is this need or impulse?
   
   
2. Reframe your reward:
   Celebrate your hike—but consider rewarding yourself with something that lasts. Think long-term: topping up your emergency fund, starting an SIP, or booking that skill course you’ve been eyeing.
   
   
3. Track your spending with intention:
   The key to feeling the impact of your hike is knowing where your money is going, so that spending doesn’t outpace your earning. That’s where a budgeting tool like axio comes in:
   
   
   
   • Track your expenses automatically
     
     
   • Set smart budgets based on income
     
     
   • Get real-time insights on spending patterns
     
     
4. Create a new plan for your new income:
   Adjust your financial goals with every raise. Allocate percentages—say, 50% to essentials, 30% to lifestyle, 20% to savings/investments. The more structured your hike, the more rewarding it feels.
   
   

A Raise Is Just the Beginning

An appraisal is more than just a number, it’s a chance to evolve your money mindset. Earning more can absolutely mean living better, but only if you spend smarter. Let your money work for you—not the other way around.