When people think of the phrase “living paycheck to paycheck,” they may visualize low-income families that are struggling to make ends meet. However, according to recent research, a sizable proportion of high earners, particularly those who make over $150,000 a year, are also victims of this vicious financial cycle.
CNBC reports that while 75% of people on $50,000 or less are living paycheck to paycheck, this percentage rises to 65% for people making $50,000 to $100,000. A whopping 45% of people making $100,000 or more said they were living paycheck to paycheck.
Moneywise highlighted a recent report that cited findings from the personal finance program Quicken and showed that 32% of Americans with yearly incomes of at least $150,000 have financial difficulties. They are using credit cards in between paychecks to fill the gap.
The Federal Reserve Bank of New York’s most recent figures reveal a noticeable increase in borrowing habits. The overall credit card debt exceeded $1 trillion by the second quarter. People in all income categories are using credit cards more frequently despite rising interest rates, especially to bridge the gap between paychecks.
Why Wealthy People Struggle
High incomes become trapped in this cycle for a variety of reasons. The following are some contributing elements:
High cost of living in cities: Many wealthy people live in big cities where the cost of living is much higher. A sizable amount of their salary might be spent on housing, transportation, and everyday necessities.
Debt obligations: Despite earning outstanding wages, many people still struggle with debts like credit card balances, mortgages, and student loans.
Social pressures: There is an unwritten expectation that wealthy people will live lives that are consistent with their financial status. This can be making expensive purchases, dining at posh establishments, or engaging in pricey pastimes.
Lack of financial literacy: having more money doesn’t necessarily mean knowing how to manage it. High-earners risk making mistakes that jeopardize their financial stability if they lack sufficient financial education.
Generation Y: Feeling the Pain
The concept of living paycheck to paycheck is not just prevalent among older generations. According to LendingTree’s research, 44% of millennials making between $100,000 and $149,000 are also having trouble. This generation struggles with separating actual essentials from lifestyle pleasures because they are suddenly earning big salaries.
Breaking the Cycle of Paycheck to Paycheck
There is some good news for high-earners who are now living paycheck to paycheck: with the correct tactics, they may use their big incomes to end this cycle and create lasting wealth. Here are some suggestions for taking action:
Understanding where your money goes is the first step in achieving financial stability. Implementing a strict budget and keeping track of every expense might reveal where money is being wasted. In this journey, tools like Quicken or Mint can be really helpful.
Reevaluate your lifestyle choices: It’s important to distinguish between needs and wants, even if it may be alluring to indulge in nicer items. It might be time to downsize from that opulent home or choose a less expensive car.
Even if you are unable to set aside a sizable sum of money, investing a small amount in startups can transform the course of your life. The investment process is made more accessible by platforms like StartEngine, which lets anyone support promising businesses with the potential for big profits. Even though there is a risk, the potential gain could significantly strengthen your financial portfolio.
Become informed: Utilize the tools available for financial literacy. You’ll be better able to make wise judgments if you have a deeper understanding of financial planning, investing, and money management.
Prior to getting deeply involved in investments, make sure you have an emergency fund. This safety net can prevent you from prematurely withdrawing from investments in emergency scenarios.
Consider consulting a financial adviser if you want expert advice. Their knowledge can offer specialized solutions that fit your financial objectives and situation.