3 Reasons Making the Average Salary in Your State May Not Be Enough
Written by
Yaël Bizouati-Kennedy
Edited by
Maria Concepcion
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Sticky inflation – which hits consumers in many aspects of their lives, from groceries to rents – soaring rates, which affect credit card balances and loans – and wage stagnation have all taken a toll on Americans’ wallets.
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And even with an average salary, it might not be enough to get by and insufficient to make ends meet.
What are the Average Salaries?
According to recent Forbes Advisory data, the average annual salary across the country is $59,428. Meanwhile, the average hourly rate nationwide stands at $28.34.
Now, of course, disparities are depending on where you live.
For instance, states with the highest average salaries include Massachusetts, with $76,600; New York, with $74,870 and California, with $73,220, according to Forbes Advisory.
Meanwhile, states with the lowest average salaries include Mississippi, $45,180; Arkansas, $48,570; and West Virginia, $49,170.
“Unfortunately, an average salary may not even cover housing costs in most states,” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “If we use the national average of $59,428 and the goal is to keep your housing below 1/3rd of your take home, your housing costs need to be below $1300/month.”
And with the average U.S. rent being $1517, according to Apartments.com, the result is that budgets are tight even before paying for the rest of life’s expenses, added Zigmont.
“States with higher average salaries often have much higher rent and housing costs, so it is an unsustainable equation,” he added. “The result is that a majority of Americans are living paycheck to paycheck, and using debt to make ends meet. Debt has a high cost and the result is a vicious cycle, with no end in sight.”
What are the Drivers?
Wage Stagnation
According to Stoy Hall, CFP, CEO and founder of Black Mammoth, “the elephant in the room,” is the stagnation of wages.
“Since the 1970s, wages have not kept pace with inflation. This means that the purchasing power of the average salary has barely budged. To put it into perspective, real wages have increased by a meager 0.7% since 1973,” Hall said.
As he further noted, if the minimum wage had kept up with inflation since 1970, it would be more than $12 per hour today, instead of the current $7.25.
“This discrepancy highlights a significant shortfall — our wages have not kept pace with the rising costs of living,” he said, adding that when your salary doesn’t grow in tandem with inflation, your ability to afford basic necessities erodes over time.
“This stagnation means that while prices for housing, healthcare, and education skyrocket, your paycheck remains virtually unchanged. The result? A widening gap between income and expenses, making it increasingly difficult to make ends meet,” added Hall.
Michael Collins, CFA, CEO and founder of WinCap Financial, echoed the sentiment, noting that salaries may not keep up with the cost of living or inflation in some industries or job markets.
“This can be due to a variety of factors such as a lack of competition in the job market or a decrease in demand for certain skills,” said Collins. “As a result, even if someone has an average salary, it may not be enough to cover their basic expenses.”
The Cost of Debt
Another key factor for Americans is that the cost of debt is soaring, said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.
“Whether it is credit card debt, or a mortgage that is now more expensive than in the past, life is getting pricier on non-discretionary things like paying debt,” said Rebell.
In turn, that means many Americans may be forced to make only the minimum payments, and the cost of carrying the ongoing debt balance becomes more expensive every time rates go up, she added.
Discover More: Here’s How Much the Definition of Middle Class Has Changed in Every State
Cost of Living
Another reason an average salary isn’t enough to get by is that the cost of living is up by more than 20% over the past two to three years. Average salaries have not kept up, according to Doug Carey, CFA, president and owner of WealthTrace.
“This has been devastating to many people who were already struggling to pay their bills,” he said. “Even worse, many non-luxury items such as groceries are up by more than 20% over the past three years and this has hit the lower and middle class particularly hard.”
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