Is the rising cost of living giving you money dysmorphia?

We’re only two months into the new year and already it feels like, monetarily at least, we’re travelling at full speed.

First, the cost of living has risen across all household types in the year to the December quarter, according to the Australian Bureau of Statistics. Then in late January, we learned that our inflation problem is proving to be particularly stubborn and that the consumer price index had risen from 3.4 per cent in November to 3.8 per cent. And as day follows night, last week the RBA lifted interest rates by 0.25 per cent.

In that context, most people would rightly be double-checking their seat belts are fastened correctly and clutching the door handle because it feels like the already years-long bumpy ride is about to get extended.

But are things really as bad as they feel or are we collectively suffering from money dysmorphia? That is, are we looking at things accurately or do we have a distorted perception of what’s really going on?

Generally, this kind of disconnect plays out in one of two ways: scrimping or splurging. People who think they have a lot less than they do tend to feel anxious or worry about their future, while also comparing themselves and what they have to other people. The downside is these people are less likely to say yes to a last-minute holiday and can easily feel overwhelmed about money, but the upside is they can usually account for every cent in their budget and have clear money goals.

It has felt like one long, drawn-out game of whack-a-mole using money instead of a mallet. Because no matter who I speak to or how well they’re doing on paper, no one seems to feel as if they’re truly getting ahead or that things are getting better.

At the opposite end of the spectrum are people who are overly confident and spend money like it’s their last weekend on Earth. These people are true believers in the “trust the process” motto, and tend to believe that everything will work out in the long run. While that relieves a lot of stress, it also comes with the risks of not knowing how your superannuation is tracking or if your credit rating is any good. It’s also my belief that comparison culture is just as influential on these kinds of spenders as it is on the scarcity group, despite their apparent confidence.

For scrimpers, splurgers and everyone in between, trying to change a relationship with money can be tricky under normal economic circumstances. But after a prolonged period of cost-of-living struggles and rising costs, it feels almost impossible. Paid off that debt? Surprise, school fees have gone up. Power bills reduced? Whoops, groceries are more expensive. Got a pay rise? Amazing, we can put that towards the home insurance increase.

For many people, it has felt like one long, drawn-out game of whack-a-mole using money instead of a mallet. Because no matter who I speak to or how well they’re doing on paper, no one seems to feel as if they’re truly getting ahead or that things are getting better.

And yet, if you dig into the ABS data, it shows that while the cost of living did increase across all households, the lowest increase across the board was in homes most likely to be working families (2.3 per cent). This was a drop of 1.7 per cent compared to the same time in 2024, and lower than any other quarter throughout 2025. It also shows that while essentials like groceries, housing and insurance all rose, lower health and electricity costs offset many of these increases.

When you look at the housing market – the holy grail of most Australians’ money ambitions – it shows younger people are doing better than you might expect. According to the Australian Institute of Health and Welfare, which used data from the most recent census in 2021 to calculate the percentage of people who own their own homes, Millennials are not only catching up to the generation ahead of them, but they’re getting their foot in the door earlier than the older cohort of their own generation.

Obviously, a fair bit has changed in the property market since 2021, but it’s worth noting that following two rate cuts last year, Australian banks reported the overwhelming majority of mortgage holders continued to meet the pre-rate cut repayment schedule. They also said about 90 per cent of Australian mortgage holders are not only meeting their payments, but are ahead on them. While the wealthiest 20 per cent are about two years ahead of where they need to be on their mortgages, even the bottom 20 per cent are still on average 10 months ahead.

None of this is to say that the cost of living isn’t still hurting a lot of people, or that buying a home has suddenly become easier. The problems people have are very real, as is the financial pain many are under. But it is interesting that even when there’s tangential proof that some things are getting better, a lot of us just don’t feel it. And that’s where the power money has over us, and our beliefs about money, can be a double-edged sword.

On Thursday, RBA governor Michele Bullock explained the reality succinctly, telling a parliamentary hearing that taking wages, tax, interest and inflation into account, incomes had grown in recent years. “It’s not shooting the lights out,” she said, “but it’s above where it was pre-COVID.”

And as my colleague Dom Powell wrote last week, for all the discomfort inflation is causing at the supermarket, it can actually be a good thing for our superannuation, savings, investments and our wages.

The problem is, though, that on their own, all of these things are small and can feel insignificant. And if they’re not immediate, they don’t always feel real.

If you’re feeling lost, the best thing to do is to take stock. Do an audit of all your incomings and outgoings, and look at if you’re still on track with your money goals. And if possible, compare it to where you were one year, two years or even five years ago. Because while it might feel like you’re treading water, there’s a good chance the numbers have a different story to tell.

Victoria Devine is an award-winning retired financial adviser, a bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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