6 Things You Must Do If Your Household Income Is Under $100,000
Written by
J. David Herman
Edited by
Chris Cluff
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Reactions to $100,000 annual household income can vary widely, from “Wow, I’m making six figures!” to “How are we going to get by on $100,000 year?”
Once considered a mark of great financial success, $100,000 a year isn’t what it used to be. If you’re bringing in $100K or less in many parts of the U.S., you’re more likely to be struggling than prospering.
A survey released by PYMNTS.com earlier this year revealed that even among Americans making $100,000 or more, 48% were still living paycheck to paycheck. Key culprits include soaring living costs, increasing debt, unwise discretionary spending and shrinking savings.
“A lot of it depends on where you live,” said Robert R. Johnson, a professor of finance with the Heider College of Business at Creighton University. “If you’re living in Manhattan, Kansas, $100,000 might go a long way. In Manhattan, New York, you’ll struggle to survive on $100,000.”
Due to this and several other variables, Johnson isn’t a big fan of $100,000 as a benchmark. He contends that good financial practices transcend salaries.
“It’s not that different for someone making a million dollars or $50,000,” Johnson said. “It’s budgeting and living within your means.”
That said, if you do find yourself with an annual household income of $100,000 or less and you’re struggling, there are multiple steps that experts advise you to take.
Also see how a six-figure salary stacks up across the United States.
Kill That Debt (or Stay Debt Free)
Debt has a way of snowballing and, before you know it, turning tight finances into serious money problems. Large monthly payments and high interest eat up incomes, even the six-figure kind.
“For those earning $100K, especially where the cost of living is super high and your after-tax earnings are not enough critical mass to invest, the priority is to become or remain debt free,” said Pam Krueger, who founded WealthRamp.com and also co-hosts “MoneyTrack” on PBS.
“It may mean you have to make a really tough choice to give something up that’s costing you, but your No. 1 goal is to reduce your stress, so you don’t dig a hole that gets any deeper.”
Discipline and budgeting (see the next item in our list) are crucial for tamping down debt.
“The key is not to take on any new debt and look with fresh, objective eyes at where you cut spending and focus on earning more income,” Krueger said.
Budget, Budget, Budget
Johnson lives in the same Nebraska neighborhood as Warren Buffett, Berkshire Hathaway’s legendary chairman and CEO. He has known Buffett for years. So it’s not surprising to hear the Creighton professor share a Buffett quote or two on subjects like budgeting.
“Budgeting is critical,” Johnson said. “Specifically, one should not simply budget and track expenses, but one should budget for savings. Warren Buffett is quoted as saying, ‘If you want to make saving a priority, take a look at how you budget. Do not save what is left after spending; instead spend what is left after saving.'”
In other words, make savings a line item in your budget — and stick to it. More fundamentally, creating a budget helps you track where your money is going and gives you a better sense of your limits. It’s hard to overemphasize the importance of this for people struggling to make ends meet.
“You can only control what’s in your control,” Krueger said. “Those are two main things: your spending and your income. Developing a budget … will help you see where you can cut back.”
Establish/Maintain an Emergency Fund
Emergency funds are one of those things that you may not think you can afford to have but that you can’t afford to not have. Even more so if you’re doing the check-to-check thing.
Krueger advises dividing your emergency savings between a money market account and a CD ladder.
“Still keep a portion of your cash for emergencies but put it to work in a smart way,” she said. “Ladder it out so you know you’ll have funds right now [and in] three months, six months, nine months, one year.
“Depending on current savings yields on CDs, aim to get 4-5% on your cash. For example, it’s smart to save enough to have a full year’s worth of your net earnings in a ‘cash’ safe account. That’s enough to divide in half and get better returns while you park the cash.”
Request a Raise or Pursue a More Lucrative Position
If your sub-$100,000 annual income isn’t cutting it, you can always go after higher-paying work — inside and outside your current company.
“There are many ways to cut back on your finances; but, in my opinion, it often makes more sense to try to raise your income,” said Julie, the otherwise anonymous creator of the One Frugal Girl blog. “Of course, this isn’t always possible, but sometimes it is.
“Is there a way to earn certifications that will help you move up the corporate ladder? Will your company pay for advanced degrees that will help you earn more? If you aren’t sure what educational benefits are available, talk to your HR department.”
Her other advice includes:
- If you don’t have a lot of obligations outside of work, you may be able to take on more responsibility or ask to work on a high-profile project that will help you achieve visibility within the company.
- Don’t be afraid to let your boss know you want to earn more money and that you are willing to take on the work to help you achieve your goals.
- Sometimes you can shift from one position to another within the company, making lateral moves that will earn more rather than just heading straight up.
“I’ve known technical support specialists to become engineers and administrative staff members to become project managers,” she said. “You never know where your path may lead if you don’t tell others where you aspire to be.”
Beware of Lifestyle Creep
Maybe hitting that $100,000 mark for annual income represents a step up for you and you feel like you’re doing just fine. Experts will tell you to enjoy it but to watch out for increasingly expensive tastes.
“Lifestyle creep is a huge problem,” Johnson said. “People start making more money, and their tastes become more rich. They think, ‘I’ll save when I make more.’ Then when they make more, they go out and spend more.”
Krueger issued a similar warning.
“One hundred thousand a year is the time to not let lifestyle creep take over,” she said. “It can be enough if you live under your means — in other words, [if you] spend less than you make. Don’t fall victim to the mindset that if you’re making $100,000 now, it will only go up from here.”
Take Advantage of Available Benefits
If you aren’t fully versed in your employer’s benefits package, you may be leaving a lot of money on the proverbial table.
“Take full advantage of every benefit you have through your employer,” Krueger said. “Does your employer offer an HSA or FSA? These vehicles can help you defray the cost of childcare and other medical expenses.”
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