Time to read : 5 Minutes
You finally get the email: "Congratulations, we're increasing your salary."
It feels like progress, validation you’re moving up... but weeks later, your bank balance hasn't noticeably changed. You ask yourself where has that shiny pay rise gone? And why does it seem to have evaporated into the ether?
Aussies are still doing it tough, with basics like food, fuel, rent, and electricity climbing sharply. A pay rise only delivers real benefit if it outpaces inflation, and for most of us it rarely does.
According to the ABS, wages grew 3.4% in the year to June 2025, but everyday costs continue to bite:
petrol hovers above $1.80 a litre
milk is up 7%
But here's the deeper truth: even when your pay rise beats inflation, you can still feel broke. Why? Because there's a more sneaky trap waiting for you inside that magical pay rise.
The more money mindset
When pay goes up, many of us feel an almost automatic pull to reward ourselves. We convince ourselves that we deserve the new car, the extra holiday, the better apartment. It feels rational in the moment. After all, you earned the pay increase, why not spoil yourself a little?
This is often what is meant by ‘lifestyle creep’. The tendency to spend more simply because you earn more… and there’s more to spend.
The $200-per-week car upgrade that felt luxurious in month one becomes just "the car" by month six.
The bigger rental that seemed like a treat becomes the new normal.
Luxurious holidays, extra subscriptions, dining out more often becomes part of your life.
These choices often swallow the entire pay bump before you realise what's happened.
Tax bracket creep adds another squeeze, pushing you into higher tax rates as your income rises. Combined with other rising costs like insurance and childcare, it's no wonder that extra salary gets absorbed into "normal" spending, leaving little to show for it twelve months later.
But there’s more to it than rising costs – economists call it hedonic adaptation (also known as hedonic treadmill): the tendency to quickly return to a baseline level of satisfaction no matter how much we earn.
It's why so many households earning six figures can still feel broke. When each new pay rise is faced with a new lifestyle cost – and there are no safety nets – income growth doesn’t transition to wealth growth.
How to protect your financial gains
A pay rise can be a turning point, but only if you protect it before lifestyle creep takes hold. Here are five practical ways to make sure extra income actually moves you forward, not sideways… or backwards:
1. Ringfence the increase ASAP
Before your lifestyle has a chance to expand, set up an automatic transfer of all or a portion of your pay increase into savings, super, or investments.
If you never see it in your spending account, you won't miss it. This single habit is the easiest way to stop lifestyle creep in its tracks. And the best way to think of it is as if you never received that extra money.
2. Kill expensive debt first
Credit cards and personal loans carry interest rates that can easily outpace investment returns. And the Buy Now Pay Later payment option often comes with late fees.
If you have debt, using your pay rise to wipe these out quickly means you could be spared some of the extra charges.
3. Think in real dollars
Know what the Consumer Price Index (CPI) is doing. If inflation is 2% and your pay rise is 3.4%, your real gain is only 1.4%. Even though that gain is small, it’s still valuable.
Thinking in "real dollars" rather than "nominal dollars" helps keep expectations realistic and spending disciplined.
💡Nominal dollars is the amount of money you earn or spend at that time, without factoring in adjustments such as inflation. It’s the face value of money in current terms.
4. Audit recurring bills
Higher income can make us lazy about bills and regular expenses. There’s so much you can do in this space to save money, and often you only have to do these once a year. Here are some suggestions:
Take a closer look at your health insurance policy. Could you be paying for extras you don’t need?
Energy bill shock is real. If you’re in NSW, VIC, the ACT or SE QLD, you may be able to find a better energy deal.
If you have a mortgage, when did you last refinance your home loan? A lower interest rate can shave thousands off your total repayments over the life of your loan.
Subscriptions are often forgotten about. Take a look at your streaming services, magazines and newspapers, or gym membership, and decide which ones you can cut.
Here’s a thought: if you can trim just $50 a month, this compounds to $600 a year. Combine this with your pay rise and you have meaningful progress.
💡When shopping around for a better deal, ask about discounts for paying upfront for the year, rather than making monthly or quarterly payments.
5. Build strong buffers
Strengthen your emergency fund so that any future curveballs to finances, such as interest rate hikes, job loss, or unexpected bills, don't throw you off course.
A modest pay rise can make the difference between treading water and being financially resilient.
Bottom line
Inflation hurts, but unconscious lifestyle creep quietly stops households from getting ahead financially. The cost-of-living crisis is real, but the more dangerous trap is what happens when higher incomes just create higher expenses.
A pay rise should feel like progress – and it can be – but only if you resist the urge to inflate your lifestyle at the same rate as your income.
So when your next pay rise hits your account, you have a choice: become a higher-earning version of someone falling behind financially, or use it to build wealth and get ahead. I know which one I’m backing.
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Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
