8 Ways People Become Poor While Earning the Same Salary for Years
Written by
Cindy Lamothe
Edited by
Ashleigh Ray
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Even someone who is earning a decent income can see their finances go down the drain due to various factors.
“It might be surprising that even real responsible folks can end up in money trouble without even realizing it’s happening,” said McKinzie Bean, personal finance and business mentor and owner of Moms Make Cents.
“Case in point: people becoming poor even when they have the same steady income.”
She says that between subtle lifestyle inflation, ballooning bills and income not keeping pace, even real financially cautious folks can become poor eventually.
Here are some ways people become poor despite earning the same salary for years.
Inflation
According to Andy Chang, founder and CEO of The Credit Review, failure to adjust for inflation can erode one’s buying power over time.
“If salaries don’t increase over time, but rents, groceries and other living costs do, people can find their income doesn’t stretch as far as it once did,” said Chang.
Ann Martin, the director of operations for CreditDonkey, cites this as one of the primary factors for becoming poor while earning the same salary.
“The problem with earning a steady income is that prices don’t remain steady,” she explained.
“We’ve all gotten a harsh refresher on inflationary dynamics over the past three years or so, but even in the low-inflation years of the 2010s, inflation generally ran between 2 and 4%, meaning that anyone who didn’t get a raise effectively got a 2-4% pay cut.”
On top of the slow creep of inflation, Martin notes there are also certain costs, especially things like rent and healthcare, that have gone up in price much more quickly than inflation.
“And these are things that people have no choice but to pay for,” she pointed out. “Even someone who was able to save up an emergency fund while on a steady income could easily be ruined by a major rent increase or an unexpected medical expense.”
Lifestyle Creep
“There’s this thing — lifestyle inflation — and it gets people all the time,” said Bean. “Bit by bit, people start living fancier. They start trading up to pricier cars, buying bigger homes and taking more luxurious vacations, but their paychecks don’t expand.”
Those upgrades seem smart individually, but stacked up, they can stretch budgets to the breaking point.
Bean continued, “Plus, everyday costs just keep rising, so it takes more dough to keep the same lifestyle. Then, some people may have some life changes. Kids come along, or they take up high-maintenance hobbies, and expenses swell while income stays flat.”
Chang agrees. He said, “As people become accustomed to a certain level of comfort or luxury, they naturally spend more without necessarily seeing a rise in income.”
These gradual increases in spending can lead to a substantial financial drain that leaves people wondering where their money has gone.
Failing To Create a Solid Budget
Neglecting to create an effective budget is one typical mistake people make, said Bean. She explained that even with a stable income, people may experience financial difficulties if they don’t keep track of their spending and manage their money well.
“Making a realistic budget that takes savings, discretionary spending and needs into account is essential,” said Bean.
Without this financial roadmap, Bean warned you run the risk of having your financial stability undermined by unforeseen costs or lifestyle inflation.
Forgetting To Save for the Unexpected
Life throws curveballs when you’re least prepared for them, and unexpected expenses like medical bills or sudden home repairs can easily derail your finances.
Even if you’re earning a steady income, if you don’t have some money set aside for these surprises, they could lead to debt.
Experts say having an emergency fund is like having a shield to protect your financial game plan from unexpected hits.
Not Investing in Yourself
Additionally, Bean points out that stagnation can result from a lack of commitment to your own growth.
“Those who don’t invest in learning new skills or furthering their education may pass up chances for career advancement or higher-paying roles, all while making the same salary.”
In order to remain competitive, one must adjust to the ever-changing nature of the job market.
“In addition to increasing earning potential,” Bean said, “ongoing education and skill development also offer a safety net in times of economic uncertainty.”
Falling Into the Debt Cycle
Through his firsthand experience of dealing with people in difficult financial situations, Chris Lenehan, the director of PennyPlan, said he sees a common recurring theme.
“When earning a steady consistent income, some people struggle to adapt their lifestyle and make sacrifices whenever their outgoings have increased.”
Once they then fall into the debt cycle, these same people often will take out loans or credit cards and only make the minimum monthly payment — meaning they are in a worse position year on year.
Lack of Financial Literacy
According to Chang, a lack of financial education can also lead to poor investment decisions or missed opportunities to grow wealth.
By simply storing money in a traditional savings account, he says people are missing the potential for increased returns through retirement funds or stocks.
Other experts also recommend investing in financial literacy by hiring a money coach, reading books or even taking classes that teach you how to make the most of your finances and grow your wealth over time.
Not Making Your Money Work For You
Having a steady income is great, but it’s not just about earning — it’s also about using that money wisely.
Experts suggest thinking of it like having a game plan for your finances.
If you’re not careful with how you spend and save, it’s as if your team is not playing to its full potential.
That’s why you should look at it through a long-term lens that takes into account debt management, saving for emergencies, investing wisely and focusing on boosting your financial literacy over time. All of this will help you take advantage of opportunities at your disposal.
The bottom line? Taking all of these steps will ensure you’re setting yourself up for a more stable and lucrative financial future.
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