How to find financial happiness if you’re suffering from lifestyle creep, according to a Harvard professor

• Harvard professor Arthur Brooks emphasized curbing bad spending habits for financial happiness.
• Brooks noted that rising credit card debt is affecting the financial well-being of many Americans.
• Mindful spending and investing in long-term assets are key to overcoming financial stress.

Bestselling author and Harvard professor Arthur Brooks believes that achieving financial happiness isn’t solved by chasing extra income but by curbing bad spending habits.

Brooks, a professor of the practice of public and nonprofit leadership at the Harvard Kennedy School and professor of management practice at the Harvard Business School, was a guest on the financial news and education site TheStreet on May 27 to discuss the science of balancing wealth with emotional well-being.

The author of 11 books said overcoming financial stress hinges on tackling lifestyle creep — such as living above your means or using things like raises to elevate your lifestyle instead of building your savings — and poor money management. Brooks also pointed out that the recent surge in credit card debt highlights the pitfalls of borrowing for consumption, which he called detrimental to financial well-being.

“The biggest source of stress that people make is, is not that there’s not enough money, but they make mistakes with their money,” Brooks said on TheStreet.

Borrowing for consumption is the most damaging financial habit

Brooks pointed to the recent rise in credit card debt as a factor that affects many people’s financial happiness.

“The No. 1 mistake that people make is that they borrow money for consumption,” Brooks said, adding that people should never borrow money to consume. “The No. 1 predictor of how your finances can drive down your happiness is borrowing for your own consumption.”

Credit card debt has become a crisis in the US following the pandemic when many Americans used up their savings.

Data collected by JPMorgan Chase shows that credit card delinquencies have soared since 2022, surpassing mortgages as the most common form of default.

Brooks called borrowing for consumption the opposite of progress toward financial well-being, which can to financial happiness.

Alternatively, he noted that mortgages and student loans can be considered debt that leads to progress and happiness since both can be investments in the future. However, people should avoid taking out student loans to attend a more expensive school just because they can get loans to pay for it, he said.

To be sure, Brooks acknowledges that sometimes people need to use credit for consumption, such as buying groceries if they don’t have enough money.

More income can cause bigger problems

To be sure, inflation has not helped people limit their spending and avoid lifestyle creep in the last couple of years as the prices of necessities like groceries and medical care have increased.

But, according to Brooks, the solution isn’t making more money: for some, the boost in earnings can damage personal finances through lifestyle creep.

Brooks pointed to the example of somebody passing up a car they can afford and buying one twice as expensive because it’s nicer.

“Think about the normal sources of avoidable stress that people have is that they want to consume, they want to buy something,” Brooks said. “They want some stuff in their life and they don’t have the means to pay for it yet. So they go into debt for it.”

You can see the entire interview here:

Have you experienced lifestyle creep in the last four years and are willing to talk about how you managed or overcame it? Reach out to this reporter at cgaines@businessinsider.com.