Lifestyle creep — the slow, almost invisible rise in spending as incomes grow — is a stealthy enemy of long-term wealth creation in India. It eats into savings, forces higher borrowing, and can halve the retirement corpus a disciplined saver might otherwise accumulate. The problem is especially acute now: household financial behaviour shows both growing appetite for consumption and rising liabilities, a combination that magnifies the damage lifestyle inflation can do over decades.
What the data says today
India’s net household financial savings fell to about 5.2% of GDP in FY24, the lowest level in more than a decade (well below the 7-8% of GDP level seen between FY12 and FY20), driven by higher liabilities and sustained consumption demand. This decline shows households are either saving less or financing more of their spending with debt — both signs that rising lifestyles are competing with long-term wealth creation. (source: ETBFSI).
Household debt has been rising too: recent summaries of RBI data and industry primers show liabilities growing faster than financial assets in 2024–25, leaving many families more leveraged than before. One industry primer reported household debt at roughly 42% of GDP (end-2024), underlining that easier credit is enabling lifestyle upgrades but also adding long-term risk. (source: HDFC Tru). Further there is a pronounced tilt towards consumption oriented credit. Non-housing retail loans (personal loans, credir cards, auto loans) now form 55% of total household debt as of March 2025.(source: RBI Fianancial Stability Report, June 2025)
Contrast that with a different streak of data: disciplined investing is rising — SIP inflows and SIP AUM hit record levels in 2025 (monthly SIP inflows touched ₹29,445 crore in Nov 2025 with SIP AUM > ₹16 lakh crore). That’s encouraging: many Indians are building wealth via financial markets. But it also shows a tension — even as more people start saving/investing, creeping expenses and debt can neutralise those gains.
Finally, retirement attitudes show the stakes: a recent Max Life / IRIS-linked finding reported that 57% of respondents fear their retirement corpus might exhaust within 10 years — a striking indicator that present spending patterns are creating long-term insecurity.
How lifestyle creep destroys wealth compounding — a simple illustration
Numbers make the effect stark. Imagine two professionals earning ₹1,00,000 a month (₹12,00,000 a year).
- Person A keeps expenses to ₹60,000 a month and saves ₹40,000/month → ₹4,80,000 annually.
- Person B allows lifestyle to expand to ₹80,000 a month and saves only ₹20,000/month → ₹2,40,000 annually.
Assume both invest their annual savings at an average annual return of 10% for 20 years. Using the standard future-value of an annuity formula:
- Person A’s corpus ≈ ₹2.75 crore (≈ ₹27,491,999).
- Person B’s corpus ≈ ₹1.37 crore (≈ ₹13,745,999).
That is: doubling the annual saving (by resisting lifestyle creep) roughly doubles the final corpus over 20 years. The arithmetic shows the painful truth — small differences in annual savings compounded over time translate into very large differences in retirement wealth.
Why India’s context makes lifestyle creep more dangerous
- Rising liabilities reduce resilience. As households borrow more for homes, cars, education, and discretionary consumption, a larger share of future income services debt rather than builds assets. When liabilities grow faster than assets, even good investment returns can be offset by interest costs and principal repayments.
- Social expectations and visible consumption. Urbanisation, social media and aspirational living push people to upgrade homes, cars, travel and gadgets — often financed through credit or by diverting what would have been long-term savings.
- Health and retirement gaps. India is an under-penetrated Health Insurance market (premium to GDP ratio of ~0.7%), which means that a large percentage of people are either not insured or are under-insured. If lifestyle creep reduces ongoing savings and the population continues to be under-insured, then any kind of medical exigency amplifies financial risk leading to larger drawdowns earlier than planned, in turn leading to an inadequate retirement corpus.
Practical steps to limit lifestyle creep and protect long-term wealth
- Build a clear goal-based financial plan. Consult a financial planner or distributor if you need professional guidance.
- Automate savings first. Treat savings like a non-negotiable expense (SIP/recurring deposits) before discretionary spending. The AMFI SIP surge shows automation works: it can force discipline in the face of temptations.
- Budget for ‘fun’ but cap upgrades. Allow a fixed percentage of income for lifestyle upgrades and increase it only after securing a target investment rate (for example, 20–30% of income).
- Keep liabilities in check. Prioritise paying down high-cost debt; view new loans critically — is this purchase adding long-term value or only temporary status?
Conclusion
Lifestyle creep is subtle, social and emotionally rewarding — which makes it hard to resist. But the numerical truth is inescapable: even modest, sustained increases in consumption dramatically reduce the power of compounding and the size of your retirement corpus. In today’s India — where household liabilities are rising even as disciplined investing grows — intentional restraint on lifestyle upgrades is not just frugality; it’s a strategic choice to secure long-term financial freedom.
Rohin Pagdiwala
Financial Planner & Distributor
info@pagdiwalainvestments.com
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