I Make $100,000 And Live Paycheck To Paycheck
21 Comments
I’ve been practicing financial planning for over 21 years, and there is a new financial phenomenon spreading like cancer. I haven’t come up with a name for this group yet, but there is a growing population of people between the ages of 30 to 50 who make more than $100,000 per year and are literally living paycheck to paycheck. Are these people lacking a college education? No! Are these people lacking a comprehensive set of benefits from their employer? No! Are these people who are having lots of money garnished from their paychecks every two weeks? No! So how is this group getting so far behind financially while making so much money?
According to a report from the Consumer Federation of America and the Consumer Planner Board of Standards, Inc., 38 percent of household live paycheck to paycheck. In 1997, this figure was 31 percent. (source: huffingtonpost.com) A report from earlier this year found that 43 percent of Americans don’t have enough money saved up to weather a financial emergency. In other words, 127.5 million people are one mishap away from joining the ranks of the 46 million Americans living below the poverty line. (source: huffingtonpost.com) All of this speaks to the financial difficulty going on across America, but how are the higher earners facing the same challenges?
The first problem I see is that many of these households have never made themselves a spending plan. They worked really hard to get to a six figure income, and when they finally get to that level they figure it is enough income that they really should be able to buy whatever they want. If they feel like eating out four times a week . . . no problem. A holiday vacation in Costa Rica during the most expensive time of the season . . . then I am worth it. Designer clothes or merchandise on sale . . . then get it while there is a deal. Since there is no measurement system in place holding a six figure income family in check on how much they spend, unfortunately many of them are spending everything they make. In addition, they can’t account for where they spend it when you ask them.
The second problem I see is that most of these people do not have a pay yourself first mentality. They have a pay myself last mentality. Since there is an internal level of arrogance that there will be a never ending supply of jobs that will pay them $100,000 or more because of their skill set, the urgency to put away money for retirement or a rainy day generally falls to the bottom of the pile. I encourage these types of earners to get used to living off of their base income and bank their bonuses. Six figure paycheck to paycheck families generally spend their bonus by earmarking it for a discretionary expense before the money even comes into their household.
The third problem I see is that the six figure paycheck to paycheck earner feels ashamed to have to ask for professional help. We all know how hard it is to make a $100k let along $300k or $400k in household income. Earners at this level tell themselves that if they are smart enough and good enough to make this type of income that they should be able to figure out their family finances. I mean, how hard could it really be?? The flaw to this logic is that it takes a specific set of skills and expertise to know how to build a family financial plan, balance sheet, and income statement. It also is extremely hard to discipline yourself which is why many of these people are living paycheck to paycheck.
The last problem is simply making poor financial decisions without looking at the entire picture. Many six figure income households will either buy too much home (or too many homes), to pricy an automobile, or not consider the ramifications on items like sending their kids to private school versus public school. By making poor choices around their total financial picture, it puts a tremendous amount of strain on having to earn more versus living comfortably off of the six figure income.
In a CFP Board Survey, more than twice the percentage of respondents who identified themselves as planners — in comparison to those who admitted to not having a comprehensive financial plan — said they are also living comfortably. This gap between planners and non-planners held true across income brackets — households making just around national median income as well as those earning an excess of $100,000. I believe this trend will continue in America without more families getting back to basics and building a sound financial plan. Do you have little to no debt? Do you have an adequate cash reserve? Are you paying yourself first to reach your financial goals? Are you adequately protected? Or, are you just one paycheck away from wondering where your next paycheck will come from? Make a smart money move and build a plan to turn your six figure income into a seven figure net worth!
Written by:
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc - The Leaders in Gen X & Y Financial Advice and Services
Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20’s, 30’s, and 40’s in the country.
TED JENKIN IS SECURITIES LICENSED THROUGH INVESTACORP, INC. A REGISTERED BROKER/DEALER MEMBER FINRA, SIPC.ADVISORY SERVICES OFFERED THROUGH INVESTACORP ADVISORY SERVICES, INC. A SEC REGISTERED INVESTMENT ADVISORY FIRM. Linked sites are strictly provided as a courtesy. Investacorp, Inc., and its affiliates, do not guarantee, approve nor endorse the information or products available at these sites nor do links indicate any association with or endorsement of the linked sites by Investacorp, Inc. and its affiliates.
A lot of these people simply make bad decisions such as living house-poor. Meaning that a large percentage of their income goes toward housing payments for a McMansion.
This is not a surprise and it happens all over the world. Budgeting family/individual finances can be a tedious job but one that will let you sleep better at night. I hope that whoever reads this post takes a step back and evaluates their spending habits. “It’s not about how much money you earn, it’s how you spend it.”-Mr.CBB
Ted, share with us your experience about living paycheck to paycheck earning $100,000+.
Thanks!
Sam
@Financial Samurai
I have personally worked with over 3,000 clients and many of them made more than $100,000 as a family. My experience is that as the income levels increase for families so does the expansion of their spending. Consequently, when income begins to contract somewhere down the line, families have a very hard time contracting fixed expenses or their discretionary spending habits. It’s always best to make a yearly spending plan and try to live either off of just your base (or just one income in the family). That way you can save any extra commission, bonus, or stock options. The biggest mistake a family can make is to have their overall mortgage payment (including taxes and insurance) be more than 25% of their overall net monthly income.
[...] they never bothered to learn how to manage the money they are earning (see: NFL athletes). Your Smart Money Moves hosts a post by Ted Jenkins ExcessiveAmountOfCertifications® that takes a look at this [...]
I’m guilty of not paying myself first. But I’ve always had money left over to save and invest. To me a big part of someone’s views towards financial management has to do with their upbringing. My parents are very frugal, so even though I earn more than some of my friends today, I still spend less than them because of my background. My plan is to reach a six figure income some day and eventually become a millionaire!
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Good luck with the FMF tournament! just voted for you.
Thank you very much!
[...] I Make $ 100,000 And Live Paycheck To Paycheck (Paycheck) – It’s hard to make $ 100,000. What’s even harder is figuring out how to manage it so you keep more of what you make. More and more, the lifestyles of American families tend to expand to match their incomes. This is why although we have highest average wage earners in the history of our country, we have more and more people who make six figures and sadly spend it all. How has it become so difficult to live on what used to be considered a wealthy income family? [...]
Great post, I found this one on FMF, will vote for you.
THANKS!!
The name I have heard for this group is HENRYs. High Earners Not Rich Yet. Although with the people you describe it sounds like it should be Not Rich Ever.
You never get rich until you learn the pay yourself rule first—save 20% off the top and never touch it, then you’ll be in great shape. Get your lifestyle to live off the other 80%.
Whoa this is sad. Even 25% of your income toward home seems crazy expensive to me. My wife and I purchased our home when we made like $60k and our monthly payment with taxes/insurance was around 23%.
We just refinanced and now we make about $130k and it is now 8% of our income.
I never really thought we’d make this much money, but both our families were fairly frugal. I drive a $3000 car with 135,000 miles on it and my wife drives a $3500 van with 150,000 miles on it. Some that I work with know how much I make and always think I’m going to go out and buy a new car when i get a big check… umm no that’s foolish – I’ll drive this thing until it’s unreliable then buy another $3-5k car.
I love your car strategy. Drive it into the dirt. Thanks for the great comments.
From some 25 or 30 years ago, check out “Getting by on $100,000 a Year” by Andrew Tobias. He foresaw the problem….and $100000 was worth a lot more back then. (And we didn’t have a government war on savers, either)
So true—most of us don’t really value a dollar anymore
No matter how much you earn you can make some really bad financial decisions. NEVER live beyond your means. I suggest from the beginning to have a budget and stick to it. Besides, you never know when you might lose that income, and you just might lose everything else if your not careful.
I agree never live beyond your means, but it is not easy