Where Did All the Money Go? The Villain in Your Transaction History

Anyone trying to figure out why they are scraping by at the end of the year could safely pin part of the blame on inflation. Higher prices have made it easier than ever to miss that other sneaky cause of overspending: lifestyle creep.

People tend to increase spending near the end of the year, and especially as their income grows. We gradually accumulate new expenses, adding pricey new products to the bathroom cabinet or clicking subscribe on 18 new streaming services. Occasional indulgences such as bar cocktails or deluxe takeout become routine—all because we think we can afford to treat ourselves.

Then suddenly, we feel at a loss when there isn’t more left at the end of the month.

If you want to rein in your spending in 2024, financial advisers say you first need to sort out where inflation ends and lifestyle creep begins. It is easy to place too much blame for overspending on inflation and the postpandemic fear of missing out and not enough on everything else, financial advisers said.

“Some of it is just economics, but some of it is keeping up with the Joneses," said Joseph Reinke, financial analyst and founder of FitBUX, a financial-software company.

Differentiating cost-of-living increases from wanton spending requires two things, said Charlotte Geletka, managing partner at Silver Penny Financial Planning, a financial-services firm: a revamped budgeting strategy, and a long, hard look in the mirror.

Face the numbers

Inflation is easing and some prices recently fell for the first time since 2020, but over the past two years, consumers have seen their budgets stretched on items from frozen vegetables to sliced bread. Take a purchase as quotidian as motor-vehicle insurance: As of October 2023, prices had jumped nearly 20% from the year prior.

As of November 2023, average hourly wages for nonfarm employees increased by 4% from a year earlier, according to the Bureau of Labor Statistics. That is only just now beating the 3% increase in the consumer-price index. But even people who scored big raises during the Great Resignation don’t necessarily feel their new paychecks go as far as they expected.

Samir Balile, a 37-year-old pharmacist in Washington, D.C., said it can be exasperating trying to figure out where the extra money went.

He thought he was doing everything he could to fight lifestyle creep. As a homeowner, he doesn’t have to worry about ever-increasing rents. And he has advanced in his career as a pharmacist and is making a good living.

“When you look at your credit-card statement at the end of the month or the week, you’re, like, ‘Yo, what do I have to show for this? $200?’" Balile said. “I feel myself in this postpandemic lifestyle, slipping. If my mother knew, she would have a heart attack."

In analyzing his own credit-card statements, Balile said he has noticed the biggest shift in spending on hitting the town with friends. Once a beer after work felt indulgent, but now ordering two cocktails and a plate of appetizers to share has become his norm—all before he and his friends decide which restaurant to try for dinner.

“It is almost as if when you do go out, you’re going to go hard," he said. “There’s no in-between."

Is it an investment?

There are good reasons to step up your spending. Buying a more expensive lifestyle can be a means to project identity to a certain class or social group, said Ori Heffetz, an associate professor of economics at Cornell University who studies consumer behavior. It is an investment in appearances, he said, but it isn’t always one that will pay off.

“They say, ‘Dress like your manager,’ or ‘Dress like your best self,’" he said.

The trouble is the markers of wealth that can be purchased only tell part of the story. The invisible signs of success—savings and investment—remain opaque to the lifestyle creeper.

“You don’t know what I have in the bank, but you see what car I drive," he said. “That is a big source of distortion."

But that investment comes at a cost. If you are passed over for a promotion or stuck in your same income bracket, cutting back on your spending is only going to feel that much harder.

The solution: Make a backward budget

Undo some of the effects of lifestyle creep with the backward budget, said Geletka, the adviser at Silver Penny Financial. The end of the year is the perfect time to reassess because you have 12 months’ worth of data at hand.

This means analyzing a year of bank statements and stripping out all the nonessential items like streaming subscriptions or vacation flights to nail down the sum of your essential expenses.

Once you have that number—likely the total of housing, transportation and grocery costs, along with insurance or other expenses unique to your household—you can compare it with what you spent previously.

Suss out which expenses you can attribute to either inflation or lifestyle creep. Forking over more money to the electricity utility is one thing; spending more on rent because you moved from a modest apartment to the fancy two-story loft is another.

From there, look at the expenses making up that other bucket of nonessentials: Have your streaming services quadruped in price over the past year, or did you sign up for more of them? What did you spend on dining out in one month compared with the previous month?

“It is simple, but it’s by no means easy, and I think people don’t want to know the truth," she said.

Raising your awareness, she said, is half the battle. When you confront the balance, the statement and the receipts, the information can help inform your plan of action.

Set realistic goals for 2024

After you have identified the pain points—say, ordering taxis when you could take the bus—Reinke recommends picking one category to reduce over the next month or so. Try first increasing your awareness of how much you spend on that given expense. Rather than ignoring your ride-share app charges, you are now keeping track of them. After one month, look at how much you have spent ordering cars. Next month, commit to lowering that number.

But, Reinke said, it is important to not set unrealistic goals. You don’t have to delete the Uber app off your phone altogether.

“If you try to make an entire lifestyle change in two months, you’ll stop doing it and go right back to what you were doing," he said.

Write to Julia Carpenter at julia.carpenter@wsj.com