Yahoo Finance Why Are People Making 6 Figures Living Paycheck to Paycheck?
Getting stuck living in a paycheck-to-paycheck cycle is an all-too-common issue — even for people making up to six figures. It’s surprising how many Americans are living paycheck to paycheck these days.
According to a 2023 report from LendingClub, over 60% of people are just scraping by without any savings or wiggle room in their budgets. What’s even more surprising is that it’s not just lower-income folks. Over half of Americans making six figures are still living paycheck to paycheck, too.
Even with that $100,000 salary, tons of people don’t have enough left over to save. So one unexpected expense or job loss means major financial stress, even for folks earning decent money.
It’s clear America is facing a massive savings crisis, with the majority unable to get ahead financially, regardless of income level. This is a huge economic problem that affects so many families across the board, even those pulling in six figures.
Is this a matter of people living above their means or is it just that cost of living is now so high (or both)? Which other factors may be coming into play? GOBankingRates spoke to financial experts to get their insights on why so many people making up to six figures are still struggling to make ends meet.
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It’s Easy To Fall Victim to ‘Lifestyle Creep’
Lifestyle creep occurs when you increase your spending as your income increases.
“For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise,” said Robert R. Johnson, Ph.D., CFA, professor of finance at Heider College of Business, Creighton University. “What happens is they are unable to improve their financial condition because they spend everything they make.”
The High Costs of Education and Housing Also Play a Role
Antonio Tovar, a wealth planner at Avidan Wealth Solutions, notes that two major wealth-building tools — higher education and housing — are now more costly than ever before, making it harder for even upper-income earners to make ends meet.
“Post-secondary education is not as affordable as it used to be,” he said. “Either you bite the bullet and borrow against your future capital and go to school, or you don’t and you try your hand at life with little education.”
Many students end up having to take out student loans to afford higher education, and thanks to interest, these loans can take a large bite out of a person’s income for years or even decades to come.
Real estate prices have also continued to rise, making it harder and harder for even upper-income earners to be able to afford to buy a home.
“As real estate prices increase, the choices narrow down to either sacrifice more cash flow by purchasing your home or continue to rent with no guaranteed projection of rental costs,” Tovar said. “Housing prices have greatly increased, especially in up-and-coming cities. The price of homeownership is partnered with property taxes, maintenance, insurance and any home improvement project costs. All can cause a financial strain.”
After setting aside funds for student loan payments, mortgage and normal fixed living expenses to keep the lights on, even people making $100,000 may not have much cash flow left over, especially if they are living in an area with a high cost of living.
“If someone lives in a high-cost-of-living area where their career is anchored, it’s not easy to just leave and move to a lesser developed area with less opportunity,” Tovar said.
Plus, if they relocate to a less expensive area, their pay may decrease as well, perpetuating the paycheck-to-paycheck cycle.
How To Break the Paycheck-to-Paycheck Cycle
The experts agree that building a budget is the first step in breaking this cycle — no matter what your salary may be.
“Having a budget is a good idea so you know what is coming in and where your money is going,” said Claudia Valladares, financial advisor at Kovar Wealth Management.
This allows you to see where you may be overspending so you can narrow the gap between what you make and what you spend. Another way to break the cycle is to make an effort to not give into lifestyle creep.
“People are wise to effectively invest any money from a raise is to act as if you didn’t receive the raise,” Johnson said. “That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.”
Laura Beck contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Why Are People Making 6 Figures Living Paycheck to Paycheck?
